Fitch Affirms Liverpool's Ratings at 'BBB+'; Outlook Positive

jueves 7 de julio de 2016 17:03 GYT

(The following statement was released by the rating agency) MEXICO CITY, July 07 (Fitch) Fitch Ratings has affirmed El Puerto de Liverpool, S.A.B. de C.V.'s (Liverpool) Long-Term Local and Foreign Currency Issuer Default Ratings at 'BBB+', with a Positive Outlook. Fitch has also affirmed the company's USD300 million senior notes at 'BBB+'. A full list of rating actions follows at the end of this release. Fitch believes that the agreement reached by Liverpool to make a public bid for at least 25.5% and up to 100% of the traded shares of Ripley Corp. S.A. (Ripley) is manageable considering Liverpool's solid balance sheet and will not have a material impact upon Liverpool's financial profile. If the agreement is heavily financed with debt, the Rating Outlook would likely be changed to Stable from Positive. The value to be paid could range between USD310 million and USD580 million, depending on the percentage of the public shareholders acceptance. The agreement includes a commitment for Ripley's joint management and an option for Liverpool to acquire additional shares two years after the transaction closing date. As part of the agreement, Ripley's current controlling shareholder the Calderon Volochinsky Family, which owns 53% of the company, will not allow their share position to fall below 50% during the first two years of the agreement. After the fifth year, their participation could be diluted to 25.1%. If all conditions are met, the acquisition is expected to close during 2016. Fitch views this acquisition as positive to Liverpool's operations as it will strengthen its business position by expanding its geographic footprint to South America, positioning it as a relevant player within the Latin American region in terms of scale and purchasing power. Fitch does not foresee a material change in its previous expectation of Liverpool's strong financial position, with total adjusted debt-to-EBITDA expected to trend below 2.0x in the short-to medium-term. The company's flexibility for additional inorganic growth will be reduced if Liverpool is able to buy around 100% of Ripley's trade shares, which would give it a 47% stake in the company. The Positive Outlook reflects Liverpool's consistent operating and financial track record through business cycles. Fitch will continue monitoring the company's execution of its growth strategy, and continuing strong positive cash generation together with low leverage (measured as FFO adjusted debt below 2x) over time could result in an upgrade. KEY RATING DRIVERS Liverpool's ratings reflect the company's leading business position in Mexico, geographic diversification and multiple store formats, all of which support its consistent positive operating cash flow generation, ample financial flexibility and low leverage levels. Strong Market Position Liverpool is the leader in the middle, middle-high and high-income segment of department stores in Mexico. During the LTM ended march 31, 2016, the company's retail revenues reached MXN81.2 billion, 2.5% above those presented in 2015. As of March 2016, the company operates 113 stores across 57 cities throughout Mexico: 80 under the name of Liverpool, 29 Fabricas de Francia, and four stores in the format Liverpool Duty Free. Around 80% of total units are owned by Liverpool. The company also has 25 shopping malls operating in 16 cities and owns a non-controlling 50% stake in Regal Forest Holding Co., which has 14 different store brands selling consumer durable products in 20 countries around Central and South America and the Caribbean. Regal Forest investment is recorded under the equity method of accounting. Format and Business Diversification provides Stable Cash Flows Liverpool has a diversified revenue base; for 2015, 86.8% of total revenues were contributed by its retail segment, 9.9% from its financial services division and 3.3% from real estate. During the first quarter of 2016, retail segment total revenues grew 13.7% compared to the same period the year before, while SSS grew 9.5%, slightly below the average of 9.8% for department stores growth of the Asociacion Nacional de Tiendas de Autoservicio y Departamentales (ANTAD). Fitch believes that the company is well positioned to continue its business strategy given the demographic and socioeconomic fundamentals in Mexico, with a growing middle class, low inflation rates, higher real wages and higher remittances due to the peso depreciation. Sound Financial Position Liverpool's adjusted leverage measured as total adjusted debt/EBITDAR as of March 2016 was 1.3x, in line with Fitch's expectations. Considering the Ripley's acquisition, Liverpool's total adjusted debt/EBITDAR could be between 1.3x and 1.9x, still in line with the current rating levels. Liverpool's growth will be underpinned by its store expansion plan in conjunction with an increased loan portfolio. The company expects to continue funding its growth strategy through cash on hand and operating cash flow. Fitch expects that a portion of the new store openings will be deployed through leased units. FX Exposure Partially Mitigated Fitch estimates that around half of Liverpool's merchandise is exposed to exchange rates. Merchandise exposure is mitigated by re-pricing in some articles after inventory restocking; a proportion of exchange rate movements are absorbed by the final customers. The company has USD300 million senior notes due in 2024. This USD-denominated debt has hedges in place that cover interest and principal which are currently below the market spot rate. Adequate Liquidity & Debt Maturity Schedule The company has good liquidity backed by its cash on hand and cash flow generation; also, the current loan portfolio covers its total debt by about 2.1x. Liverpool's next debt maturity is a local bond for MXN2.1 billion due on March 2017. Liverpool has good access to domestic and international capital markets if needed, which further strengthens its financial flexibility. In addition, the company's large portfolio of owned stores and shopping malls provides solvency through an important base of unencumbered assets. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Liverpool include the following: --Revenue growth in the mid-single digits over the medium term. --EBITDA margin between 15-16%. --Average Capex around 7.5% of revenue in 2016-2018. --Dividends in line with company policy of 15% of previous year net income. - Adjusted debt/EBITDAR ratio to remain below 2.0x. RATING SENSITIVITIES Factors that individually, or collectively, could result in a positive rating action include: a strengthening in the company's credit profile through lower leverage ratios (measured as FFO-adjusted leverage at or below 2x), consistently positive FCF throughout the business cycle, geographic diversification and a strong financial profile. Factors that individually, or collectively, could result in a negative rating action include: an expansion strategy financed primarily with debt resulting in leverage ratios (FFO adjusted leverage) above 2x and/or consistent negative FCF below Fitch's expectations, a substantial increase in non-performing receivables higher than those presented in the past, lower profitability margins that lead to weak interest coverage and large debt-financed acquisitions. FULL LIST OF RATING ACTIONS Fitch has affirmed Liverpool's ratings as follows: --Long-Term Foreign and Local Currency IDRs at 'BBB+', Positive Outlook; --Long-Term National rating at 'AAA(mex)', Stable Outlook; --Short-Term National rating at 'F1+(mex)'; --USD300 million Senior Notes due 2024 at 'BBB+'; --Long-term Certificados Bursatiles issuances (LIVEPOL 08,10,10U,12,12-2) at 'AAA(mex)'; --Short-term Certificados Bursatiles program for up to MXN5 billion at 'F1+(mex)'. Contact: Primary Analyst Maria Pia Medrano Associate Director +52 55 5955 1600 Fitch Mexico S.A. de C.V. Blvd. Manuel Avila Camacho 88, Piso 10 Lomas de Chapultepec, Ciudad de Mexico Secondary Analyst Johnny DaSilva Director +1 212 908 0367 Committee Chairperson Joe Bormann, CFA Managing Director +1 312 368 3349 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available on Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1008604 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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