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NEW FITCH MODEL UNBUNDLES RETAILER CREDIT CARD OPERATIONS -- FITCH FINANCIAL WIRE --

 NEW YORK, Sept. 30 /PRNewswire/ -- Fitch has developed a model to assess department store debt protection and profitability which unbundles credit card operations from the companies' financial statements. This enables all retailers to be analyzed on a level playing field and changes how their relative creditworthiness is viewed. The model will facilitate more accurate assessment of department store retailers. A complete research report will be available on Monday.
 The analysis of department stores became less precise following the adoption of Financial Accounting Standard No. 94 in the late 1980s. This accounting standard forces retailers to consolidates their credit card operations with their core merchandising business. From a rating perspective, retail credit card receivables generally are of good quality and self-liquidating, and often representing a significant portion of total assets. However, the debt required to support these receivables unfairly increases leverage and decreases fixed-charge coverage. For example, J.C. Penney & Co., Inc.'s leverage drops from 53.1 percent on a consolidated basis to 39.4 percent after excluding credit card receivables. Fixed-charge coverage rises from 3.5 times to 5.1 times on the same basis.
 Further complicating department store analysis is the increasing use of off-balance sheet financing techniques, such as receivables securitization and the acceptance of bank cards. These can alter the retailer's financial ratios dramatically without changing the substance of its operations.
 For each retailer rated by Fitch, the credit card receivables will be segregated and appropriate capital allocated to them. Income statement adjustments will be made for the operating income and expenses related to these operations. New ratios will be calculated for interest coverage, leverage, profitability, and operating performance. This procedure will facilitate analysis of the companies' pure retailing operations, as well as the comparative analysis of all retailers, regardless of whether they finance customer receivables. A secondary benefit will be the ability to better monitor the growth and performance of the financing operations, which can have significant impact on consolidated results.
 -0- 9/30/93
 /CONTACT: Wayne A. Josephson, 212-908-0559, or Valerie L. Gerard, 212-908-0577, both of Fitch/


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Publication:PR Newswire
Date:Sep 30, 1993
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