Investors can be confident in placing their money in CWB instruments the CWB said today despite a downgrading of the issuer credit rating by Standard & Poor’s from AAA to AA .
Chief Financial Officer, Brita Chell reminded investors that while the CWB’s long-term issuer credit rating has been lowered, its debt, which is guaranteed by the Government of Canada, has maintained a AAA/A-1 rating.
Chell noted that the newly-assigned AA credit rating is a very high rating with a miniscule risk of default. While it is too early to assess the impact of today’s announcement, she said the CWB will be working closely with investors to explain the changes.
“This downgrade is entirely due to reduced government support for the CWB’s role as a single-desk seller of wheat and barley,” Chell said, “It is not, in any way, a reflection of the CWB’s operational management or current financial condition.”
In the analysis released by S&P, the agency observes that while international threats to the CWB’s operations have declined since the collapse of World Trade Organization (WTO) talks, domestic hostilities have increased.
S&P notes that even though support for the CWB remains strong among farmers, the government continues to forge ahead with its agenda. It points to the formation of a task force, the imposition of a ‘gag order’, the upcoming barley plebiscite as well as the termination of CWB president and CEO Adrian Measner as examples of a deteriorating relationship with the federal government. According to its rationale, “Standard & Poor’s expects that government support of the CWB will continue to deteriorate as long as the current government lasts.”
CWB board chair and farmer-elected director, Ken Ritter said the S&P downgrade is a clear indication that the Conservative government’s current approach is directly affecting western Canadian farmers.
“Investors, like our grain customers, are looking for safe, secure investments and stability with their business partners," Ritter said. “If we cannot achieve this, farmers' bottom lines will ultimately be affected."
Ritter said this also shows that the government’s plan of a strong and viable CWB alongside a fully open market is unrealistic.
“This is an independent third party that has looked at the facts and concluded the CWB wouldn’t carry the same clout if its single desk is eliminated.”
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TORONTO (Standard & Poor's) Jan. 30, 2007--Standard & Poor's Ratings Services
today said it lowered its long-term issuer credit rating on the Canadian Wheat Board (CWB) to 'AA ' from 'AAA' based on reduced government support in its policy role as a monopoly seller of western wheat and barley. At the same time, Standard & Poor's affirmed the 'AAA' senior unsecured debt and the 'A-1(High)' Canadian national scale and 'A-1 ' global scale CP ratings on debt issued by CWB that is guaranteed by the Government of Canada. The outlook is
negative.
"The ratings on CWB depend on its strong public policy role and
demonstrated government support," said Standard & Poor's credit analyst
Stephen Ogilvie. Government support has been evidenced in CWB's statutorily
established role as the monopoly seller of wheat, durum, and feed and malting
barley and in the guarantees provided by the federal government on CWB's
receivables, borrowings and floor prices to producers. These guarantees
mitigated CWB's lack of paid-in capital. Recent developments, however, have
threatened CWB's monopoly status and weakened the level of support from the
federal government it previously enjoyed. "The Conservative Party made an
election commitment to enable western Canadian grain farmers to sell directly
to the grain market. Since elected, the Conservative government has taken a
number of steps in the last year that suggest it is very possible CWB could
lose its monopoly status," he added.
The federal government began to act on that commitment beginning in
September 2006 with the appointment of a taskforce to examine options for the
implementation of marketing choice and its relations with CWB began to
deteriorate. Since then, the government has banned CWB from advocating on its
own behalf, terminated the employment of CWB's president and CEO, and
announced its intention to hold a plebiscite on the marketing of barley early
in 2007. Although the Conservative minority government requires the aid of an
opposition party if it is to make changes to the Canadian Wheat Board Act, the
act that defines and governs CWB, Standard & Poor's expects that government
support of CWB will continue to deteriorate as long as the current government
lasts.
The negative outlook reflects Standard & Poor's expectation that, given
the desire of the government to reform the wheat market and the current
strained relations between the government and CWB's board, the level of
support from the federal government for CWB and its current public policy role
will not recover to a level that is consistent with a 'AAA' rating in the near
term and could deteriorate further. The future role, commercial strategy, and
organization and financial strength of CWB in a "marketing choice" scenario
are uncertain at this time. The success of the government's efforts to impose
change on CWB in the near term will depend much on farmer support and the
near-term political fortunes of the minority Conservative government. In the
medium term, the ratings trajectory will turn on the outcome of a possible
federal election, farmers' support for its monopoly position, and on any
changes to its commercial strategy, corporate structure, and operational
profile. These would include the level of capital CWB can raise and, finally,
the expected time frame for withdrawal of one or more government guarantees.
Chief Financial Officer, Brita Chell reminded investors that while the CWB’s long-term issuer credit rating has been lowered, its debt, which is guaranteed by the Government of Canada, has maintained a AAA/A-1 rating.
Chell noted that the newly-assigned AA credit rating is a very high rating with a miniscule risk of default. While it is too early to assess the impact of today’s announcement, she said the CWB will be working closely with investors to explain the changes.
“This downgrade is entirely due to reduced government support for the CWB’s role as a single-desk seller of wheat and barley,” Chell said, “It is not, in any way, a reflection of the CWB’s operational management or current financial condition.”
In the analysis released by S&P, the agency observes that while international threats to the CWB’s operations have declined since the collapse of World Trade Organization (WTO) talks, domestic hostilities have increased.
S&P notes that even though support for the CWB remains strong among farmers, the government continues to forge ahead with its agenda. It points to the formation of a task force, the imposition of a ‘gag order’, the upcoming barley plebiscite as well as the termination of CWB president and CEO Adrian Measner as examples of a deteriorating relationship with the federal government. According to its rationale, “Standard & Poor’s expects that government support of the CWB will continue to deteriorate as long as the current government lasts.”
CWB board chair and farmer-elected director, Ken Ritter said the S&P downgrade is a clear indication that the Conservative government’s current approach is directly affecting western Canadian farmers.
“Investors, like our grain customers, are looking for safe, secure investments and stability with their business partners," Ritter said. “If we cannot achieve this, farmers' bottom lines will ultimately be affected."
Ritter said this also shows that the government’s plan of a strong and viable CWB alongside a fully open market is unrealistic.
“This is an independent third party that has looked at the facts and concluded the CWB wouldn’t carry the same clout if its single desk is eliminated.”
_______________________________________
TORONTO (Standard & Poor's) Jan. 30, 2007--Standard & Poor's Ratings Services
today said it lowered its long-term issuer credit rating on the Canadian Wheat Board (CWB) to 'AA ' from 'AAA' based on reduced government support in its policy role as a monopoly seller of western wheat and barley. At the same time, Standard & Poor's affirmed the 'AAA' senior unsecured debt and the 'A-1(High)' Canadian national scale and 'A-1 ' global scale CP ratings on debt issued by CWB that is guaranteed by the Government of Canada. The outlook is
negative.
"The ratings on CWB depend on its strong public policy role and
demonstrated government support," said Standard & Poor's credit analyst
Stephen Ogilvie. Government support has been evidenced in CWB's statutorily
established role as the monopoly seller of wheat, durum, and feed and malting
barley and in the guarantees provided by the federal government on CWB's
receivables, borrowings and floor prices to producers. These guarantees
mitigated CWB's lack of paid-in capital. Recent developments, however, have
threatened CWB's monopoly status and weakened the level of support from the
federal government it previously enjoyed. "The Conservative Party made an
election commitment to enable western Canadian grain farmers to sell directly
to the grain market. Since elected, the Conservative government has taken a
number of steps in the last year that suggest it is very possible CWB could
lose its monopoly status," he added.
The federal government began to act on that commitment beginning in
September 2006 with the appointment of a taskforce to examine options for the
implementation of marketing choice and its relations with CWB began to
deteriorate. Since then, the government has banned CWB from advocating on its
own behalf, terminated the employment of CWB's president and CEO, and
announced its intention to hold a plebiscite on the marketing of barley early
in 2007. Although the Conservative minority government requires the aid of an
opposition party if it is to make changes to the Canadian Wheat Board Act, the
act that defines and governs CWB, Standard & Poor's expects that government
support of CWB will continue to deteriorate as long as the current government
lasts.
The negative outlook reflects Standard & Poor's expectation that, given
the desire of the government to reform the wheat market and the current
strained relations between the government and CWB's board, the level of
support from the federal government for CWB and its current public policy role
will not recover to a level that is consistent with a 'AAA' rating in the near
term and could deteriorate further. The future role, commercial strategy, and
organization and financial strength of CWB in a "marketing choice" scenario
are uncertain at this time. The success of the government's efforts to impose
change on CWB in the near term will depend much on farmer support and the
near-term political fortunes of the minority Conservative government. In the
medium term, the ratings trajectory will turn on the outcome of a possible
federal election, farmers' support for its monopoly position, and on any
changes to its commercial strategy, corporate structure, and operational
profile. These would include the level of capital CWB can raise and, finally,
the expected time frame for withdrawal of one or more government guarantees.
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