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TEXT-S&P keeps Alimentation Couche-Tard on watch negative
July 26, 2012 / 8:16 PM / 5 years ago

TEXT-S&P keeps Alimentation Couche-Tard on watch negative

     -- Our 'BBB-' long-term corporate credit rating on Alimentation 
Couche-Tard Inc. (ACT) remains on CreditWatch with negative implications on 
the company's acquisition of Statoil Fuel & Retail ASA, a Scandinavian 
convenience store and motor fuel retailer.
     -- The debt-funded acquisition will increase ACT's pro forma leverage to 
beyond our 3.5x threshold for rating pressure, even after accounting for a 
recently announced equity issue.
     -- We will resolve the CreditWatch placement once we assess ACT's ability 
to reduce fully adjusted leverage to below 3x within the next 18-24 months.

Rating Action
On July 26, Standard & Poor's Ratings Services left its 'BBB-' long-term 
corporate credit rating on Alimentation Couche-Tard Inc. (ACT) on
CreditWatch with negative implications, where it was placed April 19, 2012.

The CreditWatch on ACT reflects the financial risk associated with its 
recently completed acquisition of Statoil Fuel & Retail ASA, a large 
Scandinavian convenience store and motor fuel retailer. On July 24, 2012, ACT 
announced a C$300 million equity issue to repay a portion of the US$2.7 
billion of debt it incurred to fund the acquisition, although we estimate that 
pro forma fully adjusted leverage remains above our 3.5x threshold for 
downward rating pressure. We believe that leverage below 3x within 18-24 
months from a combination of lower debt and earnings enhancements would be 
consistent with an investment-grade rating on ACT.

The acquisition of Statoil strengthens ACT's business risk profile, in 
Standard & Poor's view, adding an established, profitable c-store and fuel 
retailer with a strong market position in the mature Scandinavian market. 
Statoil's stores have strong market shares of about 30% in Sweden, Norway, and 
Denmark, with good growth prospects in riskier, more fragmented eastern 
European markets. On the other hand, the acquisition and new markets for ACT 
introduce some integration risks, which might be offset by ACT's strong track 
record in this respect, its decentralized operating structure, as well as the 
retention of key Statoil personnel. In addition, Statoil has higher exposure 
to fuel sales, margins for which are volatile, but much higher in Scandinavia 
than in North America.

ACT has adequate liquidity, with cash balances of US$304 million at April 29, 
2012, more than US$800 million available under existing revolving lines of 
credit, as well as a three-year US$3.2 billion credit facility for the 
acquisition of StatOil. We believe that ACT was comfortably in compliance with 
covenants under its financing agreements at April 29, including minimum 
fixed-charge coverage and maximum financial leverage tests.

In resolving our CreditWatch, we will assess ACT's ability to reduce fully 
adjusted leverage to below 3x within the next 18-24 months. We expect the 
debt-financed acquisition increases ACT's financial risk profile, 
necessitating more than US$500 million of debt reduction or an offsetting 
amount of earnings improvements from synergies to return fully adjusted 
leverage to below 3.0x. The two companies' low near-term capital requirements 
and track records of free cash flow should enable the combined entity to 
reduce debt quickly after closing, although this could be hampered by higher 
interest costs and earnings volatility. Offsetting the risk of higher leverage 
is Statoil's high degree of real estate ownership, which could present some 
options for capital management or to bolster liquidity. ACT's industry-leading 
returns on capital will also weaken in the near term, but we expect the 
company's strong shareholder orientation to persist, with management's 23% 
ownership providing a strong incentive to improve returns.

Related Criteria And Research
     -- Key Credit Factors: Business And Financial Risks In The Retail 
Industry, Sept. 18, 2008
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- Methodology And Assumptions: Standard & Poor's Revises Key Ratios Used 
In Global Corporate Ratings Analysis, Dec. 28, 2011

Ratings List
Ratings Remaining On CreditWatch Negative

Alimentation Couche-Tard Inc.
Corporate credit rating                      BBB-/Watch Neg/--

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

Our Standards:The Thomson Reuters Trust Principles.
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