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FCL maintains high bond rating from DBRS

By Daniel Jungwirth

August 21, 2018

Federated Co-operatives Limited (FCL) has received a BBB (High) rating for its unsecured notes from DBRS, a leading bond rating service.

This is considered a very strong investment grade rating. It is the third year in a row that FCL has received this positive rating. The initial DBRS rating in 2015 allowed FCL to term out a portion of its long-term debt through the issuance of 10-year bonds at historically low interest rates. The rating provides FCL access to cost-effective debt capital as required in the future through public-style debt capital markets. 

“The DBRS statement provides confirmation that Co-op’s diverse portfolio of businesses continues to be both stable and productive,” said Tony Van Burgsteden, Vice-President of Finance at FCL. “FCL will use our cash flow to invest in growth, complete major projects, grow our cash balance and, as is always our aim, provide strong returns to our member-owner retail Co-ops.”

DBRS noted that FCL has benefited from currently strong energy earnings as well as notable growth in its crop supplies and fertilizer business segments. According to DBRS, the rating is also supported by the strong brand, the market position of the more than 170 retail co-ops in the Co-operative Retailing System (CRS), our co-operative structure and FCL’s relatively low financial leveraging. The ratings also consider the single-asset risk, environmental and regulatory risks related to the Co-op Refinery Complex (CRC) and the intense competitive environment in which the CRS network operates.

Other highlights from the DBRS rating report include:

  • Revenues from non-energy segments should increase in the low-single digits.
  • Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margins are expected to remain stable or modestly improve in the near-term because of strong margins driven by the impact of changes in crude oil and fuel prices. EBITDA for the past three fiscal years has ranged from $966 million in 2017 to $913 million in 2016 and $855 million in 2015.
    • Credit rating agencies closely monitor the EBITDA metric to evaluate the cash flow generating ability of a company. FCL also closely monitors other metrics like free cash flow operations and earnings given the capital intensive nature of the Energy business segment and to ensure a fair distribution of earnings through patronage on an annual basis.
  • Earnings are expected to remain relatively stable over the medium-term given the integrated nature of Co-op businesses, but variances in crude oil and fuel prices, refinery margins and refinery usage are anticipated.
  • Capital expenditures are expected to increase toward the $450 million level due to the large, 2018 turnaround at CRC.

The DBRS release on its rating of FCL is available at www.dbrs.com.