CHICAGO--(BUSINESS WIRE)--Fitch Ratings does not anticipate any rating implications for Target Corporation from its acquisition of leasehold interests in up to 220 Zellers stores from Hudson's Bay Company for C$1.825 billion (US$1.85 billion), or from the potential sale of its credit card receivables portfolio. A full rating list is shown below.
Target announced today that it will pay for the Zellers leasehold interests in two installments of C$912.5 million in May and September of 2011, and Fitch expects these payments will be more than covered by Target's free cash flow (FCF), which is projected at $2 billion-$3 billion annually. Target also anticipates incremental capital expenditures of around C$1 billion over 2012-2014, which would also be more than covered by FCF. Fitch believes that Target will scale back its share repurchases in order to limit incremental borrowings and maintain its retail-only adjusted debt/EBITDAR at under 2.0 times (x) (1.8x at Oct. 30, 2010).
Target also announced that it intends to sell its credit card receivables portfolio, which had $6.7 billion of receivables at Oct. 30, 2010, while retaining operational control of the business and the related marketing benefits. Fitch believes that a sale of the credit business would modestly reduce Target's operating risk profile while also reducing the company's consolidated financial leverage to under 2.0x, consistent with the current retail-only leverage, as an appropriate portion of the proceeds from the sale would be used to pay down credit-card related debt.
These transactions notwithstanding, the ratings reflect the steady operating performance in Target's retail business, improving asset quality trends within its credit card business, and stable credit metrics. The ratings also consider Target's high percentage of real estate ownership balanced by the difficult consumer environment and intense competition among discount retailers.
Fitch rates Target as follows:
Target Corporation
--Long-term Issuer Default Rating (IDR) 'A';
--Senior unsecured debt 'A';
--Bank credit facility 'A';
--Short-term IDR 'F1';
--Commercial paper 'F1'.
The Rating Outlook is Stable.
Additional information is available at www.fitchratings.com
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 16, 2010);
--'Short-Term Ratings for Corporate Finance' (Nov. 2, 2010);
--'Analysis of U.S. Corporate Pensions' (Dec. 1, 2010);
--'The Retail Register' (Aug. 3, 2010)
--'2011 Outlook: U.S. Retailers to See Continued Slow Growth' (Nov. 17, 2010).
Applicable Criteria and Related Research:
The Retail Register -- Summer 2010
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=543167
Analysis of U.S. Corporate Pensions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578365
Short-Term Ratings for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
2011 Outlook: U.S. Retailers to See Continued Slow Growth
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=575965
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