NEW YORK--(Business Wire)--
Fitch Ratings has affirmed the following ratings for eBay Inc. (eBay):
--Long-Term Issuer Default Rating (IDR) at 'A';
--Senior unsecured debt at 'A'.
The Rating Outlook is Stable.
The Ratings and Outlook are supported by eBay's:
--Market-leading payments business (principally PayPal), complemented by the
strong traffic and user base of the online commerce segment (eBay Marketplaces);
--Conservative financial policies and credit protection measures;
--Strong financial flexibility and liquidity highlighted by a free cash flow
conversion rate in excess of 25% of revenues.
Fitch expects PayPal's transaction-based operating model will continue to
benefit from an increasing share of e-commerce transactions and should be able
to offset cyclicality in Marketplaces. Fitch also expects eBay will maintain
strong credit metrics and a conservative capital structure with core leverage
(net of financing any consumer receivables) at approximately 1.0 times (x) and a
disciplined approach to acquisitions.
Concerns center on:
--Expected lower operating margins due to a mix-shift, mostly driven by expected
higher growth of the lower-margin PayPal business relative to Marketplaces;
--The company's ability to achieve consistent growth and differentiation of
Marketplaces;
--Event risk of acquisitions;
--An increase in consumer lending services (e.g. via growth of Bill Me Later)
including the possibility of debt issuance to support resultant increase in
finance receivables which are currently funded via free cash flow.
While relatively small at $511 million, Bill Me Later's customer receivables
portfolio is expected to grow. Fitch believes eBay's continued expansion of its
consumer lending business is a natural extension of the PayPal product offering,
although it alters the company's risk profile with increased exposure to
consumer credit.
Fitch expects eBay will continue to expand its geographic revenue base and
product offerings through acquisitions, historically financed with cash or
stock. eBay recently completed a successful divestiture of a majority of Skype
which values Skype at approximately $2.75 billion. eBay will maintain a 30%
equity stake and expects to receive $1.9 billion in cash in the fourth quarter
of 2009. Fitch believes there is increased potential for significant stock
repurchases via excess cash and for acquisitions which may be partially
debt-financed, particularly domestic acquisitions since eBay has significant
operations and cash balances overseas.
As of Sept. 30, 2009, eBay's liquidity was strong and supported by more than
$3.2 billion of cash and equivalents and short-term investments, a majority of
which was located overseas. Fitch expects eBay will have more than $5 billion of
cash post the proceeds from the majority sale of Skype. Fitch believes a greater
share of eBay's cash position will be located overseas in the future due to
stronger growth in international markets and thus a higher proportion of the
company's cash flow being generated outside the U.S.
Liquidity is further supported by a $1.8 billion revolving line of credit ($200
million outstanding) maturing on Nov. 7, 2012 and latest 12 months (LTM) free
cash flow in excess of $2.3 billion. The credit facility agreement requires the
company to maintain a consolidated leverage ratio (debt/EBITDA) of less than
3.0x. Fitch anticipates that free cash flow and the higher cash balance via
Skype proceeds will be utilized for acquisitions, investments, and stock
repurchases. As of Sept. 30, 2009, eBay had authority to repurchase $657 million
in shares.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings
Nick P. Nilarp, CFA, +1-212-908-0649
Jason Paraschac, CFA, +1-212-908-0746 (New York)
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Copyright Business Wire 2009
