Moody's Lifts Outlook on Office Depot (ODP) from Negative to Stable
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Moody's Investors Service today affirmed the B2 Corporate Family and Probability of Default ratings for Office Depot, Inc. (NYSE: ODP) and changed the outlook to stable from negative. A B2 rating was also assigned the company's proposed $250 million senior secured notes. Moody's also affirmed the SGL-1 Speculative Grade Liquidity Rating.
New Rating Assigned:
$250 million senior secured notes due 2019 at B2 (LGD4, 54%)
Ratings affirmed and LGD point estimates adjusted include:
Corporate Family Rating at B2
Probability of Default Rating at B2
Speculative Grade Liquidity at SGL-1
Senior unsecured notes due 2013 at Caa1 (LGD6, 96%) from Caa1 (LGD 5, 93%)
RATINGS RATIONALE
"The change in outlook to stable reflects Moody's view that management's recent steps to reduce costs have resulted in an improvement in key credit metrics, and therefore an improvement in debt protection measures," stated Moody's Senior Analyst Charlie O'Shea.
Office Depot's B2 rating considers its credit metrics, which remain weak, and its solid, though challenged, number two position in the office supplies segment. The rating also considers the difficult macroeconomic operating environment in the U.S. and Europe, which continues to pressure operating performance, as well as the continuing troubles the company is experiencing in California and Florida. We expect liquidity to remain very good and remain a critical factor supporting the B2 rating.
Upward ratings momentum could develop as the company improves the operating profitability of its North American and International businesses, resulting in a stronger credit profile. Ratings could be upgraded if debt/EBITDA approaches 5.0 times and EBITA/Interest was sustained above 1.75 times, with liquidity generally maintained at present levels. Ratings could be downgraded if debt/EBITDA is sustained above 6 times or if EBITA/interest fell below 1 time. Ratings could also be downgraded if liquidity were to weaken.
On February 17, 2012, Office Depot announced that it had commenced a cash tender offer to purchase up to $250.0 million aggregate principal amount of its outstanding 6.25% Senior Notes due 2013. Proceeds from the proposed senior secured notes transaction will be utilized to finance ODP's tender offer, which expires on March 16, 2012. Moody's notes that the entire transaction is effectively leverage-neutral.
New Rating Assigned:
$250 million senior secured notes due 2019 at B2 (LGD4, 54%)
Ratings affirmed and LGD point estimates adjusted include:
Corporate Family Rating at B2
Probability of Default Rating at B2
Speculative Grade Liquidity at SGL-1
Senior unsecured notes due 2013 at Caa1 (LGD6, 96%) from Caa1 (LGD 5, 93%)
RATINGS RATIONALE
"The change in outlook to stable reflects Moody's view that management's recent steps to reduce costs have resulted in an improvement in key credit metrics, and therefore an improvement in debt protection measures," stated Moody's Senior Analyst Charlie O'Shea.
Office Depot's B2 rating considers its credit metrics, which remain weak, and its solid, though challenged, number two position in the office supplies segment. The rating also considers the difficult macroeconomic operating environment in the U.S. and Europe, which continues to pressure operating performance, as well as the continuing troubles the company is experiencing in California and Florida. We expect liquidity to remain very good and remain a critical factor supporting the B2 rating.
Upward ratings momentum could develop as the company improves the operating profitability of its North American and International businesses, resulting in a stronger credit profile. Ratings could be upgraded if debt/EBITDA approaches 5.0 times and EBITA/Interest was sustained above 1.75 times, with liquidity generally maintained at present levels. Ratings could be downgraded if debt/EBITDA is sustained above 6 times or if EBITA/interest fell below 1 time. Ratings could also be downgraded if liquidity were to weaken.
On February 17, 2012, Office Depot announced that it had commenced a cash tender offer to purchase up to $250.0 million aggregate principal amount of its outstanding 6.25% Senior Notes due 2013. Proceeds from the proposed senior secured notes transaction will be utilized to finance ODP's tender offer, which expires on March 16, 2012. Moody's notes that the entire transaction is effectively leverage-neutral.
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