TEXT - Fitch comments on Best Buy

Thu Nov 8, 2012 10:13am EST

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Nov 8 - Fitch Ratings believes significant challenges stand in the way of completing a leverage buyout (LBO) of Best Buy Co., Inc. (NYSE: BBY), according to a report published today. Fitch estimates the private holders would need to realize an exit multiple in the low-4x range to earn a 20% IRR. This is based on current Bloomberg consensus estimates (used to build a Base Case model), which project an EBITDA decline of almost 16% from LTM levels through 2017, on a sales decline of 2.4%. Fitch's expectations are more conservative than consensus estimates. If the decline in same-store sales remains in the negative 3%-negative 5% range, as it has over the last four quarters, EBITDA is likely to be further pressured and consensus estimates could prove to be optimistic. Fitch also notes that retail sector LBOs are typically unsuccessful, unless a retailer has strong positioning within its category and the ability to grow market share on an ongoing basis in a segment that is characterized by minimal growth and heavy competition. Adding leverage to a pressured business has only added to a company's woes given the significant high fixed costs and thin margins of the business. The full report, 'Best Buy LBO - Significant Hurdles Remain' is available at, 'www.fitchratings.com.' The report also includes a detailed debt organizational structure and summary covenant analysis for the company's domestic debt.

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