Canadian Tire credit rating downgraded to BBB

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This article was published 20/08/2011 (5389 days ago), so information in it may no longer be current.

TORONTO — Credit rating agency DBRS has downgraded Canadian Tire Corp. (TSX:CTC.A) debt to BBB from an A rating, a day after the retailer completed its acquisition of sporting goods chain The Forzani Group Ltd. (TSX:FGL).

The downgrade in the debentures and medium-term notes of Canadian Tire was mainly because of the increase in the size of the company’s debt, DBRS said Friday.

Canadian Tire’s lease adjusted debt is now $3.3 billion, up from the $2.3 billion before the acquisition of the Calgary-based sporting goods retailer, which operates 534 stores under various banners including Sport Chek, Athletes World, The Hockey Experts and Nevada Bob’s Golf.

DBRS said that level of debt is not consistent with its A rating.

It also said the sporting goods business is competitive and more susceptible to ups and downs in the economy than Canadian Tire’s regular retail offerings because sporting goods are discretionary purchases.

But the agency said Canadian Tire does have a good track record of successfully integrating new companies and achieving cost savings, as it showed when it purchased clothier Mark’s Work Wearhouse in 2002.

It added Canadian Tire is good at generating the cash it will need to respond to the increasingly competitive Canadian retail scene, and Forzani (TSX:FGL) will help Canadian Tire gain the largest market share in the sporting goods sector.

Canadian Tire bought Forzani for $765 million, not including assumed debt and transaction costs, and paid for it using cash on hand and short-term debt. It expects to save $35 million on expenses each year by using the same supply chains, marketing and sourcing for both businesses.

Shares in Canadian Tire were down five cents, to $52.85 in midday trading on the TSX.

— The Canadian Press