Moody's assigns a B2 rating to Edcon's proposed notes
Moody's Investors Service has affirmed Edcon Holdings' B2 corporate family rating (CFR) and probability of default (PDR) ratings.
The ratings agency also assigned a B2 to the proposed EUR500 million issuance of senior secured notes due 2018 to be issued by Edcon's main operating subsidiary, Edcon (Pty) Ltd. but guaranteed by Edcon, Edcon Acquisition and Edgars Consolidated Stores. Concurrently, Moody's changed Edcon's rating outook to stable from negative.
Rating Assignments:
- EUR500 million senior secured notes due 2018 - B2 (LGD4, 53%) - issued by Edcon (Pty) Ltd.
Rating Actions:
Edcon Holdings (Proprietary) Ltd:
- EUR 378 million senior unsecured notes due 2015 - affirmed at Caa1; (LGD6, 93%) changed from (LGD5, 89%)
- Corporate Family Rating: B2
- Probability of Default: B2
Edcon (Pty) Ltd:
- EUR1,180 million senior secured notes due 2014 - affirmed at B2; (LGD4, 53%) changed from (LGD4, 57%)
Outlook for all ratings changed from negative to stable.
"The change in outlook is based on the expectation that the proposed transactions will be completed as proposed resulting in Edcon's debt maturity and overall liquidity profile improving as a result of addressing its near-term maturities, including the substantial current mark to market liability due to its foreign exchange hedges," stated Moody's Vice-President Senior Analyst, Soummo Mukherjee.
"Furthermore, the change in outlook also recognizes Edcon's improved operating performance over the past year with like-for-like sales growth and market share recovery in some key categories, reduced bad debt accounts and improved leverage, although still considered high for the rating category," added Mukherjee.
The proposed senior secured notes will be issued by Edcon and guaranteed on a senior secured basis by virtually all of the group's revenues, assets and EBITDA. The proposed notes have provisions to be redeemed in part or in full at any time prior to 2014 at 100% of their principal amounts plus a make-whole premium and accrued and unpaid interest or up to 35% with proceeds from certain equity offerings. After 2014, the notes may also be redeemed based on redemption prices specied in the bond documents.
Simultaneously, Edcon (Pty) Ltd. is also issuing a super senior 3-year ZAR issuance in the range of 1.0-1.5 billion rand that will rank pari passu with the company's revolving credit facility and have the same guarantee structure as the 2018 senior secured notes and be secured by virtually all of the material assets of the group.
Edcon is also in the process of extending the maturity of its current revolving credit facilities from 2012 to 2014, which will also help extend its debt maturity profile further.
The use of proceeds of both the super senior ZAR loan and the 2018 senior secured notes will be to first settle the company's significant mark to market liability (approximately ZAR5 billion), and for general corporate purposes, depending on the final size of both issuances.