Advertisement
U.S. markets closed
  • S&P 500

    5,123.41
    -75.65 (-1.46%)
     
  • Dow 30

    37,983.24
    -475.84 (-1.24%)
     
  • Nasdaq

    16,175.09
    -267.10 (-1.62%)
     
  • Russell 2000

    2,003.17
    -39.43 (-1.93%)
     
  • Crude Oil

    85.45
    +0.43 (+0.51%)
     
  • Gold

    2,360.20
    -12.50 (-0.53%)
     
  • Silver

    27.97
    -0.28 (-0.99%)
     
  • EUR/USD

    1.0646
    -0.0085 (-0.79%)
     
  • 10-Yr Bond

    4.4990
    -0.0770 (-1.68%)
     
  • dólar/libra

    1.2451
    -0.0104 (-0.83%)
     
  • USD/JPY

    153.2400
    +0.0370 (+0.02%)
     
  • Bitcoin USD

    66,500.73
    -4,226.23 (-5.98%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,995.58
    +71.78 (+0.91%)
     
  • Nikkei 225

    39,523.55
    +80.92 (+0.21%)
     

PetSmart, Inc. -- Moody's affirms PetSmart's B2 CFR; assigns B1/Caa1 ratings to new debt; outlook positive

Rating Action: Moody's affirms PetSmart's B2 CFR; assigns B1/Caa1 ratings to new debt; outlook positiveGlobal Credit Research - 27 Jan 2021NOTE: On January 28, 2021, the press release was corrected as follows: In the REGULATORY DISCLOSURES section, the hyperlink in the environmental, social and governance (ESG) risks paragraph was changed to https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406. Revised release follows.New York, January 27, 2021 -- Moody's Investors Service, ("Moody's") today affirmed PetSmart, Inc.'s ("PetSmart") corporate family rating and probability of default rating at B2 and B2-PD respectively. Additionally, Moody's assigned a B1 rating to its new proposed senior secured term loan, a B1 rating to its new proposed senior secured notes and a Caa1 rating to its new proposed senior unsecured notes. The proceeds of the new proposed facilities will be used to refinance existing debt. The outlook is changed to positive from stable. The ratings are subject to completion of the transaction as proposed and review of final documentation."The change in the outlook reflects the governance considerations particularly its financial strategy associated with the company's significant debt reduction through proceeds from the monetization of Chewy stock and additional debt reduction from the expected $1.3 billion in new equity contribution from the sponsors", Moody's Vice President Mickey Chadha stated. "In addition, the operating performance of the company has also been above expectations especially during the coronavirus related disruptions and Moody's therefore expects leverage to improve to below 4.5x in the next 12-18 months", Chadha further stated.Affirmations:..Issuer: PetSmart, Inc..... Probability of Default Rating, Affirmed B2-PD.... Corporate Family Rating, Affirmed B2Assignments:..Issuer: PetSmart, Inc.....Senior Secured Term Loan, Assigned B1 (LGD3)....Senior Secured Regular Bond/Debenture, Assigned B1 (LGD3)....Senior Unsecured Regular Bond/Debenture, Assigned Caa1 (LGD5)Outlook Actions:..Issuer: PetSmart, Inc.....Outlook, Changed To Positive From StableRATINGS RATIONALEPetSmart's B2 corporate family rating is supported by the company's very good liquidity and its position as the largest specialty retailer of pet products and services in the US. Although the company's leverage is high, Moody's expects lease adjusted debt/EBITDA to be below 4.5x in the next 12-18 months. PetSmart has improved leverage significantly as the company has reduced debt through the monetization of Chewy stock and improved EBITDA. For the LTM period ended November 1, 2020 leverage was at 5.4x compared to 7.1x at the end of fiscal 2019. Pro forma for the refinancing, leverage will improve further to about 4.5x as the sponsors will contribute about $1.3 billion in equity with proceeds used to further reduce debt.Chewy is currently a non-guarantor restricted subsidiary of PetSmart. However, after the refinancing, Chewy will no longer be a subsidiary of PetSmart but will become a sister company of PetSmart under common ownership of a parent controlled by the sponsors. Therefore post refinancing Chewy will provide no credit or liquidity support to PetSmart other than a $4 billion Chewy common stock pledge as collateral for PetSmart's new secured debt. The pledgor of the stock collateral will also guarantee the secured and unsecured debt of PetSmart. However, the stock collateral and the pledgor guarantee will fall away if total net leverage is equal to or less than 2.00x. Moody's views the transfer of Chewy's ownership stake as credit negative and expects all future proceeds from monetization of Chewy stock will go to the equity sponsors. Chewy currently has a market value of about $42 billion which values PetSmart's current 62% ownership of Chewy at about $26 billion. Governance remains a key credit consideration given that PetSmart's financial strategies will continue to be dictated by its private equity owners.The pet products and services industry remains highly competitive with increasing competition from the mass retailers including large chains like Walmart, Target, and Kroger and pure play e-commerce retailers like Amazon and Chewy. Despite the close to 300% increase in omnichannel sales which include buy online pickup in store (BOPIS), ship to home and ship from store, in the first three quarters Moody's estimates the company's e-commerce penetration remains low at less than 5%. However, PetSmart has demonstrated the resilience of its business model as it very successfully navigated the disruptions caused by the coronavirus pandemic reporting comparable store sales growth of 8.4% for the first nine months of fiscal 2020.Other positive rating factors include PetSmart's well-known brand and broad national footprint. The company's sizeable services offering is a positive as it provides a defensible market position and is less vulnerable to e-commerce. The pet products industry in general remains relatively recession resilient, driven by factors such as the replenishment nature of consumables and services and increased pet ownership. Moody's expects the company to continue to report comparable store sales growth in fiscal 2021 as its proprietary brands and specialty offerings continue to resonate with customers.The positive outlook reflects Moody's expectation that the current positive operating trends will be sustained supporting further improvement in credit metrics over the next 12 months, that PetSmart's financial strategies will support a further reduction in leverage and that liquidity will remain very good.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSSustained growth in revenue and profitability and continued free cash flow generation while demonstrating conservative financial policies could lead to a ratings upgrade. Quantitatively, ratings could be upgraded if debt/EBITDA is sustained below 4.5 times and if EBIT/interest expense is sustained above 2.5 times while maintaining very good overall liquidity.PetSmart's ratings could be downgraded if overall operating trends decline or if operating margins erode, indicating that the company's industry or competitive profile is weakening. Ratings could also be downgraded if the company's financial policies were to become aggressive particularly in terms of dividends and acquisitions or if liquidity deteriorates. Quantitatively, a ratings downgrade could occur if debt/EBITDA does not improve and remains above 5.75 times or EBIT/interest is sustained below 1.5 times.The term loan is expected to contain covenant flexibility for transactions that could adversely affect lenders, including: incremental facility capacity up to: (i) the greater of $952M and 0.75x pro forma Consolidated EBITDA plus (ii) an unlimited amount subject to (a) if secured by the collateral on a pari passu basis, 2.75x first lien net leverage; (b) if secured by the collateral on a junior priority basis, 3.25x senior secured net leverage; (c) if unsecured, 3.75x total net leverage (or, if junior secured or unsecured debt is incurred in connection with a permitted acquisition or other investment, senior secured net leverage or total net leverage, respectively not increasing). 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; partial dividends of ownership interests could jeopardize guarantees. There are no leverage-based step-downs to the requirement that net asset sale proceeds prepay the loans or be reinvested.PetSmart, Inc. is the largest specialty retailer of supplies, food, and services for household pets in the U.S. The company currently operates close to 1,650 stores in the U.S. and Canada. Revenues total about $7.5 billion (excluding Chewy). The company is owned by a consortium of sponsors including BC Partners, Inc., La Caisse de dépôt et placement du Québec, affiliates of GIC Special Investments Pte Ltd, affiliates of StepStone Group LP, and Longview Asset Management, LLC. PetSmart currently owns 62% of Chewy, a leading online retailer of pet food and products in the United States. However, post transaction PetSmart will not own Chewy.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.At least one ESG consideration was material to the credit rating action(s) announced and described above.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