S&P Assigns 'AA-' Rating to Nike's (NKE) Proposed $1B Unsecured Notes Offering

October 18, 2016 11:22 AM EDT

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S&P Global Ratings said today that it assigned its 'AA-' issue-level rating to NIKE Inc.'s (NYSE: NKE) proposed $1 billion senior unsecured notes due in 2026 and $500 million senior unsecured notes due in 2046. We expect the company will use proceeds for IT infrastructure improvements, such as investments in its direct-to-consumer platform to enhance consumer engagement and the ability to meet consumers' buy anywhere/anytime purchasing preferences. We also believe it will be used to support improvements to its global distribution network to more efficiently move increasing volume through its platform, general corporate purposes, and transaction fees and expenses. Pro forma for the transactions, reported debt is approximately $3.55 billion.

NIKE Inc., the parent company in the group, is the obligor for each tranche of the existing and proposed senior unsecured notes and the borrower for the $2 billion unsecured revolving credit facility expiring Aug. 28, 2020. The issue-level ratings are equalized with the issuer rating because the parent company issues the majority of the group's financial debt, priority liabilities are not material, and the proposed notes will rank equally with all existing senior unsecured obligations.

Our ratings on NIKE reflect its leadership position in the global athletic footwear and apparel markets with revenue expected to approach $35 billion for the fiscal year ending May 2017. The company's products are spread across nine categories: Running, NIKE Basketball, the Jordan Brand, Football (soccer), Men's Training, Women's Training, Action Sports, Sportswear and Golf. The company's strong brand awareness is based on its ongoing marketing, product innovation activities and alliances with athletes and teams that serve to elevate NIKE products to the must-have category. The company's brand promise is underpinned by its efficient global supply chain and distribution network that enhances merchandising capability and working capital management.

Our assessment also reflects our view that NIKE's credit metrics will remain near current levels in 2016 and 2017 (adjusted debt-to-EBITDA leverage below 1x), given its consistently good cash flow generation, and profitability. We expect the company will remain shareholder friendly and continue its dividends and share repurchases near recent levels. Nevertheless, it can fund shareholder distributions easily through internal cash flow, without materially impacting its credit metrics. (See Summary, NIKE Inc., published Feb. 22, 2016.)

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