DBRS Morningstar also downgraded Husky's Preferred Shares - Cumulative rating to Pfd-3 from Pfd-3 (high) and its Commercial Paper rating to R-2 (middle) from R-2 (high). All trends are Stable. The actions remove the ratings from Under Review with Negative Implications where they were placed on
DBRS Morningstar assessed the consolidated business risk profile of the combined entity to be moderately stronger relative to Husky's stand-alone business risk profile. However, the rating downgrades reflect DBRS Morningstar's opinion that the impact of the stronger business risk profile is more than offset by weakness in the combined entity's consolidated financial risk profile, relative to Husky's stand-alone financial risk profile, because of a material increase in indebtedness and resulting weaker financial metrics (see DBRS Morningstar's press release 'DBRS Morningstar Places Husky Energy Inc. Under Review-Negative Following Agreement to Combine with
Cenovus, as the resulting combined entity, plans to pursue a conservative financial policy and prioritize deleveraging the balance sheet over the medium term. A sizable free cash flow (FCF; cash flow after capital expenditures and dividends) surplus is expected by 2022 as earnings and operating cash flow increase based on the assumption of recovering crude oil prices, improved refining margins, and the realization of expected synergies from the combination. DBRS Morningstar expects key credit metrics, using its base-case commodity price assumptions, to remain relatively weak in 2021 before materially improving in 2022 (lease-adjusted debt-to-cash flow around 2.5 times). DBRS Morningstar expects Cenovus to maintain a strong liquidity position.
DBRS Morningstar maintains a longer term midcycle pricing forecast range of
Given DBRS Morningstar's current commodity price assumptions, a rating upgrade is unlikely over the next two years. However, a negative rating action may result if the projected improvement in credit metrics does not materialize because of weaker-than-expected crude oil prices and refining margins and/or the combined entity is unable to realize the projected synergies as planned.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Oil and Gas and
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
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Ratings
Date Issued Debt Rated Action Rating Trend Attributes
i
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
U =
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-participating
04-Jan-21 Issuer Rating Downgraded BBB Stb CA
04-Jan-21 Senior Unsecured Notes and Debentures Downgraded BBB Stb CA
04-Jan-21 Commercial Paper Downgraded R-2 (middle) Stb CA
04-Jan-21 Preferred Shares - Cumulative Downgraded Pfd-3 Stb CA
04-Jan-21 Commercial Paper Disc.-W/drwn Discontinued -- CA
04-Jan-21 Preferred Shares - Cumulative Disc.-W/drwn Discontinued -- CA
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