SANTIAGO, Chile & NEW YORK--(BUSINESS WIRE)--Fitch Ratings views S.A.C.I. Falabella's (Falabella) recent announcement that the company has signed binding agreements to acquire 50.1% of CONSTRUDECOR SA for a total amount of R$388 million (approximately USD187 million) as neutral to Falabella's credit quality. The remaining stake (49.9%) will be held by Dimitrios Markakis, who will remain as CEO of the company.
CONSTRUDECOR SA is a corporation organized under the laws of the Republic of Brazil that operates 57 home improvement stores in the state of Sao Paulo under the brand 'DICICO'. The company recorded 2012 annual sales of approximately R$789 million (USD381 million) as of the end of 2012 through 57 stores, all the stores being rented, with a selling area of 118,000 square meters. The brand is only found in Sao Paulo.
Although the acquired company's EBITDAR and debt levels have not being disclosed, when considering the size of the transaction relative to Falabella's cash flow generation and balance sheet, Fitch expects the transaction will not materially change Falabella's leverage and liquidity, even assuming high financial leverage coming from the acquired company. Strategically, the transaction provides Falabella with the opportunity to enter the growing Brazilian retail market with this home improvement format.
Falabella's total adjusted debt (on-balance and off-balance sheet) was USD9 billion as of Dec. 31, 2012. The company's financial leverage, measured by total adjusted Debt/EBITDAR, was 5.2x by the end of 2012. This ratio calculation considers debt related to the leveraged banking operations. Excluding the banking operations debt, but including debt that supports Promotora CMR Falabella S.A.'s (CMR) non-bank credit card operations, the company's adjusted leverage is estimated at 3.3x. On a consolidated basis - retail, credit card and banking businesses - Falabella had approximately USD1.2 billion of short-term debt as of Dec. 31, 2012. Liquidity is viewed as adequate due to cash flow from operations (CFO) of approximately USD1.9 billion, USD1.2 billion in cash and marketable securities, and approximately USD2.1 billion in short-term receivables related to its credit card operations.
The Stable Outlook incorporates the view that Falabella's credit profile will remain stable in the medium term. Gross financial leverage - excluding liabilities related to the banking business - is expected to remain stable at about 3.0x, as financial services operations and capital expenditures are expected to be funded primarily with the company's cash flow generation. Also factored into the Stable Outlook is the expectation that the company's portfolio credit quality will remain stable.
Fitch currently rates Falabella as follows:
--Foreign and local currency long-term Issuer Default Ratings (IDRs) 'BBB';
--USD700 million senior unsecured notes due in 2023 'BBB'.
The Rating Outlook is Stable
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'National Ratings Criteria', Jan. 19, 2011.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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