Advertisement
U.S. markets close in 4 hours 33 minutes
  • S&P 500

    5,254.14
    +5.65 (+0.11%)
     
  • Dow 30

    39,759.57
    -0.51 (-0.00%)
     
  • Nasdaq

    16,400.41
    +0.89 (+0.01%)
     
  • Russell 2000

    2,125.81
    +11.47 (+0.54%)
     
  • Crude Oil

    82.51
    +1.16 (+1.43%)
     
  • Gold

    2,234.90
    +22.20 (+1.00%)
     
  • Silver

    25.00
    +0.24 (+0.98%)
     
  • EUR/USD

    1.0805
    -0.0025 (-0.23%)
     
  • 10-Yr Bond

    4.1940
    -0.0020 (-0.05%)
     
  • GBP/USD

    1.2638
    +0.0000 (+0.00%)
     
  • USD/JPY

    151.2160
    -0.0300 (-0.02%)
     
  • Bitcoin USD

    71,266.65
    +2,180.47 (+3.16%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,972.74
    +40.76 (+0.51%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Petco Health and Wellness Company, Inc. -- Moody's assigns B2 CFR to Petco Health and Wellness; B2 to proposed TL

Rating Action: Moody's assigns B2 CFR to Petco Health and Wellness; B2 to proposed TLGlobal Credit Research - 18 Feb 2021New York, February 18, 2021 -- Moody's Investors Service, ("Moody's") today assigned a B2 corporate family rating and B2-PD probability of default rating to Petco Health and Wellness Company, Inc. ("Petco"). Moody's also assigned a B2 rating to the company's new proposed senior secured term loan and assigned a speculative grade liquidity rating of SGL -1. The outlook is stable.The proceeds of the proposed new debt will be used to refinance the existing debt at Petco's subsidiary, Petco Animal Supplies, Inc. Moody's views the proposed refinancing as a credit positive as it will extend Petco's nearest maturity to 2026 from 2023. The existing ratings at Petco Animal Supplies, Inc., including the existing B2 corporate family rating, will be withdrawn at closing. The ratings on the proposed senior secured term loan are subject to satisfactory review of documentation.Assignments:..Issuer: Petco Health and Wellness Company, Inc..... Probability of Default Rating, Assigned B2-PD.... Speculative Grade Liquidity Rating, Assigned SGL-1.... Corporate Family Rating, Assigned B2....Senior Secured 1st Lien Term Loan, Assigned B2 (LGD4)Outlook Actions:..Issuer: Petco Health and Wellness Company, Inc.....Outlook, Assigned StableRATINGS RATIONALEPetco's B2 corporate family rating reflects its improved leverage from the combination of repaying over $1.0 billion in debt using the proceeds from its IPO and its improved EBITDA due to better margins related to a change in sales mix. After the debt repayment lease-adjusted debt/EBITDA declined to below 4.0x from the pre-IPO level of about 5.5x. Moody's expects lease adjusted debt/EBITDA and EBIT/interest to be around 3.7x and 1.5x respectively in the next 12 months as same store sales are expected to remain positive supporting further EBITDA growth. On a funded debt/reported EBITDA basis leverage will be higher at about 5.0 times. Traffic will continue to be pressured in the first half of fiscal 2021 as consumers consolidate trips to the store however transaction size will remain high and will offset the weak traffic trend. The company will remain majority owned by private equity sponsors, CVC Capital Partners and Canada Pension Plan Investment Board, which inherently has certain risks specifically as it relates to the high likelihood of a shareholder friendly financial policy. Petco has a strong market presence in the pet retail and services industry and the company's sizeable offering of exclusive premium pet nutrition products drives a recurring stream of customer traffic. Additionally, its wide assortment of pet toys and selected pet services such as grooming or vaccinations make it a destination retailer for many pet owners.Although still relatively low, Petco's e-commerce penetration has also improved significantly in the past year with the growth in the company's omni channel approach including buy online pick-up in store, same day delivery, and curbside pick-up. However, the company faces increasing competition from other pure online retailers like Chewy (owned by PetSmart) and Amazon, mass retailers like Walmart and grocery stores, and other pet specialty stores in the food and nutrition categories. While Petco's market presence is substantial, the competitive landscape is getting tougher.Petco's ratings are supported by its very good liquidity, well-known brand, and broad national footprint. The pet products industry also remains relatively recession-resilient, driven by factors such as the replenishment nature of consumables and services and increased pet ownership.The speculative grade liquidity rating of SGL-1 reflects very good liquidity largely supported by Moody's expectation of positive free cash flow of just over $100 million in 2021, cash balances maintained above $80 million over the next twelve months and a $500 million asset based revolving credit facility of which at least $350 million is expected to remain available.The B2 rating on the proposed senior secured first lien term loan is the same level as the B2 CFR reflecting that first lien debt comprises the majority of Petco's capital structure. The B2 first lien term loan rating also reflects its position in the proposed capital structure where it is junior to the $500 million asset based revolving credit facility but senior to Petco's general unsecured claims. The term loan is expected to contain covenant flexibility that could adversely affect lenders, including: incremental facility capacity up to: (i) the greater of $543 million and LTM consolidated EBITDA plus (ii) an unlimited amount subject to (a) if secured by the collateral on a pari passu basis, 3.0x first lien net leverage; (b) if secured by the collateral on a junior priority basis, 3.0x senior secured net leverage; (c) if unsecured, either (i) 3.0x total net leverage, or (ii) less than 2.0x interest coverage (in each case, tests may also be satisfied if leverage or interest coverage is neutral). An amount up to the greater of $271.5m and 50% LTM consolidated EBITDA may be incurred with an earlier maturity than the existing debt. Collateral leakage is permitted through the transfer of assets to unrestricted subsidiaries, there are no additional "blocker" protections. Only wholly-owned subsidiaries must provide guarantees raising the risk of guarantee release. There are leverage-based step-downs to the requirement that 100% of net asset sale proceeds prepay the loans, with step-downs to 50% and 0% based on achieving reductions to closing date first lien net leverage ratio of 0.50x and 1.00x, respectively.The stable outlook reflects Moody's expectation that Petco's same store sales growth will continue, credit metrics will not deteriorate and the company will continue to generate free cash flow in the next 12 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSPetco's ratings could be upgraded if the company's operating performance continues to improve with same store sales and profitability growth being sustained while maintaining good liquidity and financial policies that are focused on improving credit metrics. Specific metrics include maintaining lease-adjusted debt/EBITDA below 4.0 times and maintaining EBIT/interest expense over 2.0 times.Petco's ratings could be downgraded if operating trends are reversed, financial policies become more aggressive, or if liquidity erodes. Specifically ratings can be lowered if operating margins or free cash flow deteriorates. Quantitatively, a downgrade could occur if lease-adjusted debt/EBITDA is sustained above 5.75 times or if EBIT/interest expense remains below 1.5 times.Petco Health and Wellness Company, Inc. is a national specialty retailer of premium pet consumables, supplies and companion animals and services with 1,468 pet care centers in 50 states, the District of Columbia and Puerto Rico as of October 31, 2020. The Company also offers an expanded and integrated range of consumables, supplies and services through its www.petco.com, www.petcoach.co, www.petinsurancequotes.com, and www.pupbox.com websites. Revenue exceeded $4.7 billion for the latest twelve month period ended October 31, 2020. The company is majority owned by CVC Capital Partners Advisory (U.S.) and Canada Pension Plan Investment Board.The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Manoj Chadha VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Margaret Taylor Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​

Advertisement