TEXT-S&P cuts Best Buy rating to 'BB+'

Mon Aug 6, 2012 3:33pm EDT

Overview
     -- U.S. consumer electronics retailer Best Buy's founder and largest 
shareholder, Richard Schulze, has offered to buy the remaining shares of the 
company for a purchase price in the range of $24.00 to $26.00 per share (about 
$9 billon). 
     -- We believe that Best Buy's credit profile would weaken materially 
because such a transaction would add substantial amounts of debt and hinder 
cash flow protection measures.
     -- We are lowering our corporate credit rating one notch to 'BB+' from 
'BBB-', keeping the ratings on CreditWatch with negative implications, and 
assigning a '3' recovery rating to the company's senior unsecured debt.
     -- The CreditWatch listing reflects the possibility of a multi-notch 
downgrade should Mr. Schulze complete a leveraged buyout depending on the 
final purchase price, if any, and our continuing concerns about the retail 
consumer electronic sector, Best Buy's current business model, and any 
possible restructuring plans.

Rating Action
On Aug. 6, 2012, Standard & Poor's Ratings Services lowered its corporate 
credit rating and other ratings on Best Buy Co. Inc. to 'BB+' from
'BBB-'. The ratings remain on CreditWatch with negative implications, where they
were originally placed on April 4, 2012.

At the same time, we assigned our '3' recovery rating to the company's senior 
unsecured debt, indicating our expectations for meaningful (50% to 70%) 
recovery under a simulated default scenario. While numerically, the recovery 
expectations for the senior unsecured debt are greater than 70%, we are 
capping the recovery rating at '3' given the potential for additional 
indebtedness.

The rating action is a result of founder and largest shareholder, Richard 
Schulze's proposal to acquire the company for a purchase price in the range of 
$24.00 to $26.00 per share. We estimate at the current proposal would result 
in a total purchase price of approximately $9 billion. The transaction, if 
completed, would materially weaken Best Buy's credit protection metrics 
because we believe it will add a significant amount of debt.

Rationale
In our opinion, a meaningfully debt-financed transaction by Mr. Schulze would 
weaken Best Buy's credit protection metrics considerably from current levels. 
As of the first quarter ended May 5, 2012, the company's adjusted total debt 
to EBITDA was 1.9x and interest coverage was 6.5x. Depending on the amount of 
debt to be used in a buyout and our view of a turnaround plan for the 
company's operations given the changing industry dynamics, we could lower the 
rating by multiple notches. We estimate that a $9 million transaction, would 
result in pro forma debt leverage of about 3.8x and EBITDA to interest 
coverage of about 2.5x. 

CreditWatch
We aim to resolve the CreditWatch as soon as possible, subject to the timing 
of a proposed transaction, if any. If no transaction occurs, we would expect 
to resolve the CreditWatch based on the current management team's business 
strategy, cost-reduction and growth initiatives to improve the company's 
business model, and its implications for our overall assessment of the 
company's credit profile. In addition, our analysis will focus on our view of 
the secular changes in the industry and Best Buy's ability to adapt its model 
to those changes. 

Related Criteria And Research
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Criteria Guidelines For Recovery Ratings On Global Industrials 
Issuers' Speculative-Grade Debt, Aug. 10, 2009 
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
     -- Key Credit Factors: Business And Financial Risks In The Retail 
Industry, Sept. 18, 2008 
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- Credit FAQ: Knowing The Investors In A Company's Debt And Equity, 
April 4, 2006

Ratings List

Downgraded; Remaining On CreditWatch
                                        To                 From
Best Buy Co. Inc.
 Corporate Credit Rating                BB+/Watch Neg/--   BBB-/Watch Neg/--
 Senior Unsecured                       BB+/Watch Neg      BBB-/Watch Neg

Recovery Rating Assigned

Best Buy Co. Inc.
 Senior Unsecured                       BB+/Watch Neg
   Recovery Rating                      3


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings referenced 
herein can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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