March 26, 2013 / 11:11 AM / 5 years ago

RPT-Fitch: Rexel's Ratings Unaffected by EUR Tranche Tap Issue

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March 26 (Reuters) - (The following statement was released by the rating agency) Fitch Ratings says that Rexel SA’s (‘BB’/Stable) planned bond tap issue of its recently priced EUR500m 5.125% notes due 2020 does not affect the ‘BB’ rating assigned to the instrument on 19 March 2013 or the group’s Issuer Default Rating. The additional notes will have the same terms and conditions as the above debt issue. They will be senior unsecured, unguaranteed obligations of Rexel and have the same ranking as the existing senior notes. Rexel’s securitisation debt, finance lease obligations and debt incurred by subsidiaries (together referred to as senior debt) will continue to rank ahead of debt incurred by Rexel. While bondholders at the Rexel level will be reliant on dividend payments made by the group’s subsidiaries to the holding, any structural subordination concerns are mitigated by expected limited senior leverage, measured as senior debt/EBITDA, below the threshold of 2x considered by Fitch as critical (1.4x based on FY12’s EBITDA). As a result, we continue to expect average recovery prospects for unsecured bondholders in the event of default. The proceeds from the latest bond issuance, including the proposed tap issue, will be used for general corporate purposes including the redemption of the 8.25% senior notes due 2016. This add-on debt issue does not increase the net debt of the group while gross leverage would increase by up to 0.2x EBITDA, therefore not affecting the group’s credit ratios in any meaningful way. KEY RATING DRIVERS: - Challenging environment, solid performance driven by continuing cost control and savings derived from bolt-on M&A activity. - Resilient business model derived from adequate geographical diversification, strong market shares in core markets and increasing presence in fast-growing emerging countries. This adds to improvement in its sales mix towards higher added value products and services - part of its “Energy in Motion” strategic plan. - Free cash flow (FCF) critical: Pre-dividend FCF to EBITDAR remained above 30% in 2012. Rexel has demonstrated the ability to remain cash flow generative throughout the economic cycles, notably thanks to its business model resilience, low capital intensity and control over working capital. Despite weak economic prospects for 2013 and a sustained dividend pay-out, Fitch expects Rexel’s positive FCF to remain above EUR150m in 2013 and to average c. EUR210m per annum to 2016. - M&A appetite aimed at boosting its presence internationally while retaining adequate financial flexibility. Thanks to its solid FCF generation capacity and assuming more limited acquisition spending (EUR200m/ EUR300m annually) relative to the high amount spent in 2012, Fitch is confident the company will regain headroom under its ‘BB’ rating from 2013, reverting to the lower leverage seen in 2011, below 4.5x, by 2015. RATING SENSITIVITIES Positive: Future developments that could lead to positive rating actions include: - FFO adjusted net leverage below 4.0x on a continuing basis and evidence of resilient profitability. - The continuation of strong cash flow conversion, measured as pre-dividend FCF to EBITDAR average for two years consistently above 30%. Negative: Future developments that could lead to negative rating action include: - A large debt-funded acquisition, or a deeper than expected economic slowdown with no corresponding increase in FCF (notably due to working capital inflow and/or dividend reduction) resulting in (actual or expected) FFO adjusted net leverage above 5.0x for more than two years. - A more aggressive shareholder-friendly stance weakening credit protection measures could result in a negative rating action if the tough economic climate persists. - Average two-year pre-dividend FCF to EBITDAR at or below the 25%-30% range combined with weaker profitability.

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