S&P Assigns 'BBB-' Rating to STORE Capital (STOR); Outlook is Positive

August 31, 2016 10:32 AM EDT

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S&P Global Ratings assigned its 'BBB-' corporate credit rating to STORE Capital Corp. (NYSE: STOR) with a positive outlook.

"Our ratings on STOR reflect the company's above-average asset quality and well-diversified portfolio, along with its solid underwriting platform notably absent of defaults. While leverage is currently higher than peers, we expect it will continue to improve through embedded annual rent bumps and the funding of acquisitions in a leverage-neutral to slightly deleveraging fashion," said credit analyst Nader Abadi.

The positive outlook reflects our view that an upgrade is possible if STOR's underwriting platform is successful in continuing to add good quality assets to its portfolio, funded by a mix of debt and equity, over the coming one to two years. Further unencumbering the portfolio by replacing secured debt with unsecured debt issuances would also be a positive. We project STOR's leverage and coverage metrics will continue to improve, with debt to EBITDA falling to the mid-6x range by the end of 2017, with FCC improving to the mid-3x area over the next 12 to 18 months.

We would consider raising the corporate credit rating by one notch should STOR continue to execute on its acquisition strategy, growing its scale while continuing to achieve strong operating performance. To receive strong consideration for an upgrade, STOR would also need to reduce its overall leverage such that debt to EBITDA declines to below 6.5x on a sustained basis.

We would consider revising our outlook to stable should STOR fund a larger than expected portion of its aggressive acquisition pipeline with debt, such that debt to EBITDA is sustained above 7x. We could also revise the outlook should the company face material tenant disruptions such that operating performance weakens modestly.

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