FREE

Lowe's Announces Sale of its Canadian Retail Operations; No Immediate Impact on Credit Risk Profile

DBRS Limited (DBRS Morningstar) does not expect an immediate impact on Lowe’s Companies, Inc.'s (Lowe’s or the Company; rated BBB (high) with a Stable trend by DBRS Morningstar) credit risk profile following the Company's announcement that it has entered into a definitive agreement to sell its Canadian retail business to private equity firm Sycamore Partners for $400 million plus a performance-based deferred consideration (Transaction). The Transaction would allow Lowe's to (1) intensify its focus on increasing its market share in its primary market, namely the U.S., and (2) improve its profitability and return on invested capital by exiting the lower-margin Canadian business.

The Transaction is expected to close in early 2023 and is subject to customary closing conditions and regulatory approvals. While the details around the deferred consideration and allocation of divestiture proceeds are not yet known, DBRS Morningstar believes this Transaction, on its own, is not going to have a material impact on the Company’s credit risk profile, given the relatively modest magnitude of the Transaction. DBRS Morningstar would expect to continue to base its ratings on the Company’s strong brand and its number two position in a competitive U.S. home improvement retail market, and its free cash flow-generating capacity. The ratings also continue to consider the intense competitive environment and the economic cyclicality of the home improvement sector.