NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an expected rating of 'BBB' (EXP) to the proposed issuance of up to USD400 million of unsecured notes to be issued by S.A.C.I. Falabella (Falabella). Proceeds from the note issuance will be used to refinance existing debt. The target tenor of the proposed issuance is 10 years; the final amount of the issuance will depend on market conditions.
Fitch currently rates Falabella's Long-term and Local Currency Issuer Default Ratings (IDRs) at 'BBB' with Stable Outlook. See the complete list of Falabella's ratings at the bottom of this press release.
Falabella's ratings reflect its position as a leading regional retailer with store formats that include department stores, home improvement stores, and food retailing businesses. The company also has real estate operations that mainly comprise the construction, development and leasing of shopping centers. The company has a strong presence in Chile, Peru and Colombia and a small participation in the Brazilian home improvement market. The company complements its retail business with a proprietary credit card business and retail banking operations in Chile, Peru and Colombia.
The Stable Outlook for Falabella incorporates the view that the company's credit profile should remain relatively moderate in the medium term. Gross adjusted leverage (excluding liabilities related to the banking business) is expected to trend toward 3x as recently completed acquisition is being absorbed. Capex and financial services needs are projected to be funded primarily with the company's cash flow generation.
KEY RATING DRIVERS
Diversified Business Model Reduces Risks:
Falabella has an integrated business model that supports stable margins. Its businesses include department stores, home improvement stores, supermarkets, real estate and financial services segment, which comprises Promotora CMR Falabella S.A. (credit card business in Chile) and Banco Falabella (Chile). Approximately 35% of the company's total revenue comes from operations outside of Chile. In the last 12-month period (LTM) ended June 30, 2014, the company's total revenues and adjusted EBITDAR reached USD13.4 billion and USD2.1 billion, respectively, resulting in an adjusted EBITDAR margin of 15.7%.
Stable Net Adjusted Leverage:
Fitch expects Net Adjusted leverage on pro-forma basis to remain moderate at around 3.6x (excluding banking operations), after the recent acquisition of Maestro Peru S.A. (Maestro) for USD492 million. This represents an increase from 3.2x as of June 30, 2014. On consolidated basis (including banking operations), Net Adjusted leverage should increase to 4.3x on a pro-forma basis, from 4.2x. Falabella's consolidated adjusted debt (on-balance and off-balance) was near USD9.6 billion as of June 30, 2014. Total consolidated on-balance debt was USD8.2 billion and was composed mostly of bank loans, public debt, financial leases and bank deposits.
Adequate Liquidity:
Falabella's main sources of liquidity are internal generation consisting of USD844 million of CFO during the LTM ended June 30, 2014. Cash and equivalents of USD716 million and a short-term receivables portfolio of USD2.4 billion further bolster the company's liquidity. During the next 12-month period ended in June 2015, the company faces debt maturities of USD 1.2 billion. The company's liquidity ratio, measured as FCF plus cash and marketable securities over debt service coverage was 0.4x as June 30, 2014. Refinancing risk is low due to the company's financial flexibility resulting from its CFO generation and ample capital market access.
Negative but Manageable Free Cash Flow:
Falabella's strong growth in the region is expected to continue limiting free cash flow (FCF) generation, as capital expenditures and high working capital requirements continue to be high. The company's total investment plan for 2014-2017 should be around USD4 billion. As of LTM ended June 2014, the company generated negative FCF of USD197 million due to USD453 million of capex and USD194 million in paid dividends. The company's FCF is expected to remain negative in the low-single digits in the medium term. It was -2.8% during LTM June 2014.
RATING SENSITIVITIES:
Positive: Future developments that could collectively lead to positive rating action include:
--Gross adjusted leverage - excluding banking operations - consistently below 2.5x;
--Moving towards positive free cash flow (FCF) generation after capex & dividends;
--Liquidity ratio, measured as FCF plus cash and marketable securities over debt service coverage, consistently in excess of 1.25x.
Negative: Future developments that could lead to a negative rating action include:
--Significant deterioration in the credit quality of the company's credit card and banking businesses;
--FCF consistently reaching levels around -15% of revenues;
--Gross adjusted leverage - excluding banking operations - consistently above 4x.
Fitch currently rates Falabella as follows
--Local currency Issuer Default Rating (IDR): 'BBB';
--Foreign currency IDR: 'BBB';
--USD500 million unsecured bonds first tranche due in 2023 'BBB';
--CLP94,500 million unsecured bonds second tranche due in 2023 'BBB';
--Long-term national scale rating 'AA (cl)';
--Bonds No. 468, series F 'AA(cl)';
--Bonds No. 579, series J 'AA(cl)';
--Bonds No. 578, series G and H 'AA(cl)';
--Bonds No. 395 'AA(cl)';
--Bonds No. 467 'AA(cl)';
--Bonds No. 395, series K and L 'AA(cl)';
--Bonds No. 467, series M 'AA(cl)';
--Commercial paper instruments No. 028 'AA(cl)'/'N1+ (cl)';
--Commercial paper instruments No. 035: 'AA(cl)'/'N1+ (cl)';
--Commercial paper instruments No. 036 'AA(cl)'/'N1+ (cl)';
--Commercial paper instruments No. 037: 'AA(cl)'/'N1+ (cl)';
--Commercial paper instruments No. 038: 'AA(cl)'/'N1+ (cl)';
--National equity rating: Level 2 (cl) (Primera Clase Nivel 2).
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);
--'Fitch Affirms Falabella's Ratings and Places Maestro's Ratings on Positive Watch' (Sept 13, 2014);
--'Fitch Affirms Falabella's IDR at 'BBB'; Outlook Stable' (Aug. 12, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=904054
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