UPDATE: S&P Downgrades eBay (EBAY) to 'BBB+'; Reflects 'Satisfactory' Business Profile
Highlights:
- eBay Inc. is completing its planned separation of its PayPal segment into an independent company through a tax-free transaction.
- We are lowering our corporate credit rating on eBay Inc. to 'BBB+' from 'A' and removing the rating from CreditWatch with negative implications.
- We are also lowering the issue-level rating on the company's senior unsecured debt to 'BBB+' from 'A' and our commercial paper rating to 'A-2' from 'A-1', and removing the ratings from CreditWatch with negative implications.
- The lower ratings reflect our downward revision of eBay's business risk profile as a result of the spin-off of PayPal, which accounts for about half of eBay's total revenues, and the revision of its financial risk profile, as we expect the company to engage in shareholder return activities and acquisitions such that debt leverage will increase from its current net cash position.
- The stable outlook reflects our expectation that eBay will maintain its leadership position in the rapidly growing global e-commerce industry, continue to preserve its strong profitability level, and meet its shareholder return and growth initiatives, while maintaining leverage below 2x over the next two years.
Standard & Poor's Ratings Services today said it lowered its corporate credit rating on eBay Inc. (Nasdaq: EBAY) to 'BBB+' from 'A'. The outlook is stable.
In conjunction with the lowering of the corporate credit rating, we also lowered our issue-level rating on eBay's senior unsecured debt to 'BBB+' from 'A' and our commercial paper rating to 'A-2' from 'A-1'.
We also removed the ratings from CreditWatch, where we had placed them with negative implications on Sept. 30, 2014.
"The 'BBB+' ratings on eBay reflect our view of the company's 'satisfactory' business risk profile, revised downward from 'strong,' as a result of the planned spin-off of PayPal, which represented a significant part of eBay's consolidated business at about 44% of total revenues in 2014 and about 35% of the company's total operating income (excluding unallocated corporate and other expenses)," said Standard & Poor's credit analyst David Tsui.
Despite the reduced product diversification, eBay is still considered one of the largest e-commerce platforms globally, with a highly recognizable brand name, and has a geographically diversified customer mix.
Our ratings on the company also reflect our view of the company's "minimal" financial risk profile, which incorporates our expectations for higher shareholder returns following the planned spin-off and for debt leverage to increase from its current net cash position.
The stable outlook reflects our expectation that eBay will maintain its leadership position in the rapidly growing global e-commerce industry, continue to preserve its strong profitability level, and meet its shareholder return and growth initiatives, while maintaining leverage below 2x over the next two years.
We could lower the rating on eBay if the company experiences increased competition, suppressing revenues and earnings growth, or if management pursues more aggressive financial policies, including significant debt-financed acquisitions or shareholder returns, causing its debt to EBITDA to exceed the 2x level over the next two years.
We would consider an upgrade if eBay is able to re-establish a track record of growth at or above industry growth rates, which would, in our view, enhance its competitive position while maintaining its existing profitability and financial risk profile.