NEW YORK--(BUSINESS WIRE)--Fitch Ratings' affirmation of S.A.C.I. Falabella (Falabella) follows the company's announcement that it has purchased Maestro Peru S.A. (Maestro), a Peruvian home improvement store retail chain, for approximately USD492 million. This transaction is viewed as neutral for Falabella's credit quality, as the pro forma increase in its leverage that results from the transaction remains in line with expectations incorporated in the ratings. The Rating Outlook for Falabella remains Stable. Fitch has simultaneously placed the ratings of Maestro on Rating Watch Positive. See the complete list of related rating actions at the bottom of this press release.
Through this transaction Maestro has become a fully owned subsidiary of Sodimac Peru, which is an indirect wholly owned subsidiary of Falabella. Sodimac Peru and Maestro are the two largest home improvement specialty retailers in Peru with combined sales on a pro forma basis of more than USD1 billion. The acquisition will represent incremental adjusted debt of approximately USD724 million for Falabella, which includes the transaction price and the assumption of Maestro's adjusted debt. Falabella had EBITDAR and net adjusted debt levels of USD2.1 billion and USD8.7 billion, respectively, as of June 30, 2014. Excluding Falabella's banking operations from these figures, the company generated USD1.5 billion of EBITDAR and had USD4.9 billion of net adjusted debt.
Falabella's net adjusted leverage measured as total adjusted net debt/EBITDAR remains moderate at around 3.2x, excluding its banking operations, and nearly 4.2x on a consolidated basis. Fitch estimates Falabella's pro forma total adjusted net debt/EBITDAR ratio to increase to around 4.3x. Excluding banking operations, Falabella's pro forma net adjusted leverage is expected to increase to 3.6x.
Fitch views the acquisition as strategically positive over the medium term. Through this acquisition Falabella will become the undisputed leader in the underpenetrated Peruvian home improvement industry. As of June 30, 2014, the main players in the industry - modern channel only - were Sodimac, Maestro and Promart, with market share participations of approximately 45%, 41%, and 14%, respectively. Maestro's operations include 30 stores that have a total selling space of 182,000 square meters (m2). Approximately 50% of these stores are owned by Maestro.
Falabella's ratings continue to reflect its position as a leading regional retailer with store formats that include department stores, home improvement stores, and food retailing businesses. 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 Positive Rating Watch on Maestro's ratings takes into account the credit linkage between the two companies post-acquisition, which stems from the legal, operational, and strategic synergies between Falabella and Maestro that will result from the announced acquisition. Positive rating actions on Maestro's ratings, likely to be a multi-notch upgrade, are possible after the legal, operational and financial strategies of Falabella in regards to Maestro become clearer.
The Stable Outlook for Falabella incorporates the view that the company's credit profile should remain relatively moderate in the medium term. Gross financial leverage - excluding liabilities related to the banking business - is expected to trend toward 3x as this acquisition is being absorbed. Capex and financial services needs are projected to be funded primarily with the company's cash flow generation.
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 affirms Falabella's ratings as follows
--Local currency Issuer Default Rating (IDR) at 'BBB';
--Foreign currency IDR at 'BBB';
--USD500 million unsecured bonds first tranche due in 2023 at 'BBB';
--CLP94,500 million unsecured bonds second tranche due in 2023 at 'BBB';
--Long-term national scale rating at 'AA (cl)';
--Bonds No. 468, series F at 'AA(cl)';
--Bonds No. 579, series J at 'AA(cl)';
--Bonds No. 578, series G and H at 'AA(cl)';
--Bonds No. 395 at 'AA(cl)';
--Bonds No. 467 at 'AA(cl)';
--Bonds No. 395, series K and L at 'AA(cl)';
--Bonds No. 467, series M at 'AA(cl)';
--Commercial paper instruments No. 028 at 'AA(cl)'/'N1+ (cl)';
--Commercial paper instruments No. 035 at 'AA(cl)'/'N1+ (cl)';
--Commercial paper instruments No. 036 at 'AA(cl)'/'N1+ (cl)';
--Commercial paper instruments No. 037 at 'AA(cl)'/'N1+ (cl)';
--Commercial paper instruments No. 038 at 'AA(cl)'/'N1+ (cl)';
--National equity rating at Level 2 (cl) (Primera Clase Nivel 2).
The Rating Outlook is Stable.
Fitch places the following ratings for Maestro on Rating Watch Positive:
--Foreign currency IDR 'B';
--Local currency IDR 'B';
--Senior unsecured notes 'B/RR4'.
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
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=875194
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