S&P Global Ratings has cut its credit rating for SNC-Lavalin Group Inc. (TSX:SNC) after the Canadian engineering firm issued its second profit warning in as many weeks.
S&P cut the Montreal-based company to BBB-, its lowest investment-grade rating, from BBB previously. The downgrade reflects the reduced outlook for earnings and cash flow, and heightened risk from a global slowdown and potential fallout from corruption charges in Canada, S&P said in a news release.
SNC-Lavalin is currently at the centre of a controversy that’s ensnared Prime Minister Justin Trudeau. On Monday, the company said it failed to reach an agreement with a client in a dispute over a mining project in Latin America, prompting it to slash its profit forecast by more than 40% for the year. The stock and bonds plunged on the news.
"The downgrade primarily reflects S&P Global Ratings’ expectations that SNC-Lavalin’s earnings and cash flow will be lower than its previous estimates over the next couple of years," S&P said in the written statement.
SNC also faces a slowdown in its oil and gas business in the Middle East due to rising tensions between Canada and Saudi Arabia, the ratings company said. And, SNC has to deal with potential fallout from fraud charges in Canada, which could result in a 10-year ban on federal contracts.
The cut to SNC’s credit rating comes as Canada’s ethics watchdog announced that he is investigating whether Trudeau, or his staff, pressured Canada’s former Attorney General to help the company settle corruption charges out of court. Last October, Canadian prosecutors opted against negotiating a settlement with SNC-Lavalin over the charges stemming from its Libyan operations about a decade ago.
