Oct 23 - Fitch Ratings does not expect any rating implications from Target
Corporation's announced sale of its credit card portfolio to TD Bank
Group. Fitch rates Target's long-term Issuer Default Rating (IDR) 'A-', and its
short-term IDR at 'F2'. The Rating Outlook is Stable. A full rating list is
Target will sell the portfolio for the gross value of the outstanding
receivables at the time of the sale. The portfolio currently has a gross value
of $5.9 billion. Under a seven-year agreement, TD Bank will underwrite, fund and
own future Target credit card receivables, and Target will service the
Following the sale of its credit card receivables, which is expected to close in
the first half of 2013, Target will lose the income from its credit business
($560 million of EBIT in the latest 12 months ended July 28, 2012), though
it will benefit from a profit sharing arrangement. Target plans to use
approximately 90% of the net proceeds from the sale to reduce debt levels, and
the balance for share repurchases.
Fitch expects that consolidated adjusted debt/EBITDAR will improve to around
2.0x after the sale of the credit card receivables is completed and the planned
debt repayment is completed. Financial leverage (excluding the credit business)
is expected to track at around 2.0x in 2012-2014, before potentially improving
to below 2.0x in 2014, when most of the Canadian stores will have been open for
a full year.
Going forward, the required investments for the company's expansion in Canada
and ongoing share repurchases are expected to be largely financed with operating
cash flow. Target has indicated that it expects to repurchase $1.5 billion of
shares in 2012, compared with net share repurchases of $1.9 billion in 2011.
Fitch rates Target as follows:
--Long-term IDR 'A-';
--Senior unsecured debt 'A-';
--Bank credit facility 'A-';
--Short-term IDR 'F2';
--Commercial paper 'F2'.
The Rating Outlook is Stable.