Tiffany & Co. (TIF) Assigned 'BBB+' Corp. Rating by S&P; Outlook Stable

Standard & Poor's Ratings Services assigned its 'BBB+' corporate credit rating to New York City-based Tiffany & Co (NYSE: TIF). The outlook is stable.

Concurrently, we assigned our 'BBB+' issue-level ratings to the company's proposed two tranches of senior unsecured notes due in 2024 and 2044.

The company intends to use the proceeds from the notes offering to redeem its 9.05% senior notes due 2015, and three tranches of 10% senior notes due 2017, 2018, and 2019, respectively. The balance of the proceeds will be used for general corporate purposes.

In addition, we assigned our 'BBB+' issue-level ratings to the company's proposed $750 million credit facilities consisting of two $375 million facilities due in 2018 and 2019, respectively.

Our stable rating outlook reflects our expectation that the company's credit protection measures will remain in line with recent levels over the next 18 to 24 months and its well-regarded brand name, and geographic diversification will drive sales and profit growth.

"Our view of Tiffany's good position in the highly fragmented and competitive global jewelry and luxury goods retailing industry, its well-regarded brand name, and its geographic diversification support our assessment of the company's business risk. However, its narrow business focus, and the discretionary nature of its merchandise partly offset these strengths," said credit analyst Mariola Borysiak. "In addition, Tiffany's operations are susceptible to economic cycles and volatility in stock market as evidenced by declining profitability in fiscal 2008 and 2009."

The stable rating outlook on Tiffany & Co. reflects our expectation that the company's credit protection measures will remain in line over the next 18 to 24 months and its well-regarded brand name and geographic diversification will drive sales and profit growth, supporting our "strong" assessment of the company's business risk profile.

Although unlikely in the next year, we could lower the rating if the company's performance deteriorates because of a sharp decline in the global economy leading to sales and profit erosion. We could reassess the company's business risk profile lower in that case to "satisfactory". In addition, a more aggressive financial policy such that the company issues debt to fund shareholder initiatives and debt leverage increases over 3x could also trigger a downgrade. Under this scenario, we would reassess our financial risk profile to "significant" from "intermediate".

We do not expect to raise the rating in the next 18 to 24 months given our view that the company's profitability is susceptible to economic cycles and its cash flow generation is inconsistent. Longer term, a positive rating action would be predicated on our belief that the company will maintain its debt-to-EBITDA ratio below 2x. In addition, the company's ability to consistently generate free operating cash flows of more than $400 million and maintaining free operating cash flow to total debt of close to 30% would be a necessary consideration for a higher rating.

You May Also Be Interested In

• Growth isn't weak enough to truly undercut inflation pressures - BMO
• Deutsche Bank Upgrades Westlake Chemical (WLK) to Buy
• Deutsche Bank Downgrades Cabot Corp. (CBT) to Hold