Press Release

DBRS Morningstar Places Federated Co-operatives Limited Under Review with Negative Implications

April 30, 2020

DBRS Limited (DBRS Morningstar) placed Federated Co-operatives Limited’s (FCL or the Company) Issuer Rating and Senior Unsecured Notes rating of BBB (high) Under Review with Negative Implications. The rating action reflects DBRS Morningstar’s expectation that the Coronavirus Disease (COVID-19) outbreak and its related macroeconomic aftereffect will have a negative impact on FCL’s earnings profile, although the duration and extent thereof remains uncertain.

FCL’s Energy segment, its largest segment by revenue, will be materially affected in F2020 because of decreased refinery margins from the recent extreme price declines and heightened volatility in crude oil and petroleum markets. In addition, implementation of coronavirus containment and mitigation measures have resulted in more people working from home and abandoning travel plans which has significantly reduced fuel demand in Q2 2020. DBRS Morningstar expects timid demand to continue throughout F2020 on the backdrop of weaker broad economic activity. DBRS Morningstar also expects the Company’s Home and Building Solutions segment to be negatively affected over the near-to-medium term, as home renovations are cyclical in nature and are affected by numerous factors, notably gross domestic product and unemployment rates. Furthermore, FCL’s Food segment is also expected to remain pressured amid intense competition.

The degree to which operating income declines would in turn weaken FCL's financial profile based on a corresponding contraction in cash flows and a deterioration of key credit metrics potentially to levels below what is considered acceptable for the current BBB (high) rating, despite the Company’s relatively low financial leverage. DBRS Morningstar expects the Company to implement capital-preserving measures and curtail capital expenditures in response to the current environment. While DBRS Morningstar acknowledges FCL’s ability to preserve cash flows and liquidity and maintain relatively low financial leverage, DBRS Morningstar notes that any further rating action will be more influenced by the degree to which operating income is affected. As such, in its review, DBRS Morningstar will focus on assessing the duration, magnitude, and extent of the impact of coronavirus on FCL’s earnings profile, and aims to resolve the Under Review status as soon as possible.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Merchandising Industry (August 15, 2019), Rating Companies in the Oil and Gas and Oilfield Services Industries (August 23, 2019), DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 22, 2020), and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2019), which can be found on under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

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

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.

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