Best Buy (BBY) Cut to 'Junk' at S&P Amid Potential Take-Private Deal
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Price: $27.66 -1.43%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 2.5%
Revenue Growth %: -19.1%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 2.5%
Revenue Growth %: -19.1%
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Standard & Poor's lowered its corporate credit rating and other ratings on Best Buy Co. Inc. (NYSE: BBY) to 'BB+' from 'BBB-', or junk status. The downgrade comes in light of the $24-$26 per share take-private offer from founder Richard Schulze. The ratings remain on CreditWatch with negative implications, where they were originally placed on April 4, 2012.
"The transaction, if completed, would materially weaken Best Buy's credit protection metrics because we believe it will add a significant amount of debt," explained Standard & Poor's credit analyst Jayne Ross.
In our opinion, a meaningfully debt-financed transaction by Mr. Schulze would weaken Best Buy's credit protection metrics considerably from current levels. As of the first quarter ended May 5, 2012, the company's adjusted total debt to EBITDA was 1.9x and interest coverage was 6.5x.
"Depending on the amount of debt to be used in a buyout and our view of a turnaround plan for the company's operations given the changing industry dynamics," added Ms. Ross, " we could lower the rating by multiple notches." We estimate that a $9 million transaction, would result in pro forma debt leverage of about 3.8x and EBITDA to interest coverage of about 2.5x.
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"The transaction, if completed, would materially weaken Best Buy's credit protection metrics because we believe it will add a significant amount of debt," explained Standard & Poor's credit analyst Jayne Ross.
In our opinion, a meaningfully debt-financed transaction by Mr. Schulze would weaken Best Buy's credit protection metrics considerably from current levels. As of the first quarter ended May 5, 2012, the company's adjusted total debt to EBITDA was 1.9x and interest coverage was 6.5x.
"Depending on the amount of debt to be used in a buyout and our view of a turnaround plan for the company's operations given the changing industry dynamics," added Ms. Ross, " we could lower the rating by multiple notches." We estimate that a $9 million transaction, would result in pro forma debt leverage of about 3.8x and EBITDA to interest coverage of about 2.5x.
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