Fitch Ratings Affirms Saks' Notes At 'BB+/BB-'; Rtg Outlook Neg.Business Editors CHICAGO--(BUSINESS WIRE)--July 26, 2002 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed its 'BB+' rating of Saks Incorporated's $700 million bank facility and its 'BB-' rating of the company's senior notes. Approximately $1.2 billion of senior notes are affected by the action, which follows Saks' announcement that it has agreed to sell its credit card receivables to Household International. The Rating Outlook remains Negative. The ratings reflect Saks' solid position within its markets balanced against its weak operating results and high financial leverage. Saks' operations have been pressured by soft apparel sales and growing competition from specialty and discount retailers. Sales at the company's luxury retail business (Saks Fifth Avenue Saks Fifth Avenue is a chain of upscale American department stores that is owned and operated by Saks Fifth Avenue Enterprises (SFAE), a subsidiary of Saks Incorporated. It competes in the elite luxury department store market with Neiman Marcus, Bergdorf Goodman and Barneys New ) have been particularly hard hit by the drop off in tourism since 9/11. Weak industry conditions are expected to persist over the near term. Saks has agreed to a 10-year strategic alliance with Household International, with Household owning existing and future receivables, and Saks retaining customer service activities. The sale of the receivables will generate net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of $300-$350 million, which will be used to repurchase common stock and reduce debt. In addition to some debt reduction, the transaction will help to simplify Saks' balance sheet by removing approximately $1.1 billion of off-balance sheet securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. receivables and reducing financing requirements in the future. These benefits will be offset in part by the loss of finance income. Saks' credit measures have softened over the past two years, despite meaningful debt reduction, due to a sharp decline in operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. . EBITDAR Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring Costs - EBITDAR An indicator of a company's financial performance calculated as: = Revenue - Expenses (excluding tax, interest, depreciation, amortization, and restructuring costs) coverage of interest plus rents declined to 1.7 times (x) in the 12 months ended 5/4/02 from 2.1x in 2000 and 2.5x in 1999. Leverage as measured by lease-adjusted debt to EBITDAR increased to 5.3x in 12 months ended 5/4/02 from 4.4x in 2000 and 4.0x in 1999. The current levels are weak for the rating category, though they should begin to recover over the near term as the company's operations gradually stabilize and as debt levels are further reduced with the proceeds from the Household transaction. Longer term, Saks' management intends to maintain a conservative financial posture, having scaled back capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. in order to harness cash flow for ongoing debt reduction, and possibly a limited level of share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. . |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion