SNC-Lavalin, the company at the centre of a political storm, just had its rating cut

SNC-Lavalin, the company at the centre of a political storm, just had its rating cut

SNC-Lavalin Group Inc. had its credit rating cut by S&P Global Ratings after the Canadian engineering firm issued its second profit warning in as many weeks.

S&P cut the Montreal-based company to BBB-, the lowest investment-grade rating, from BBB, according to a statement Tuesday. 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.

The company, at the center of a controversy that’s ensnared Prime Minister Justin Trudeau, said Monday 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 per cent for the year. The stock and bonds plunged on the report on Monday.

“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 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. SNC also has to deal with potential fallout from fraud charges in Canada, which could result in a 10-year ban on federal contracts, S&P said.

The cut to SNC’s rating comes as Canada’s ethics watchdog said it would investigate whether Trudeau or his staff pressured his former attorney general to help the company settle corruption charges out of court. The probe follows a Globe and Mail newspaper report last week that said his office urged the attorney general to strike a deal. Trudeau and current Justice Minister David Lametti denied the report.

In October, Canadian prosecutors opted against negotiating a settlement with SNC over the charges stemming from its Libyan operations about a decade ago. The lack of a deal with Canada has probably cost SNC more than $5 billion in lost revenue and continues to damage its reputation, Chief Executive Officer Neil Bruce — who wasn’t with the company when the Libyan allegations emerged — said in December.

Tuesday it was reported that court documents show that Quebec prosecutors are working with the RCMP onthe possibility of new criminal charges against SNC-Lavalintied to a contract to refurbish Montreal’s Jacques Cartier Bridge.

If the provincial prosecution service pushes ahead with the four potential fraud charges outlined in court filings, the embattled engineering giant would face a legal battle on another front.

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