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24 Oct 2016
€380 million of new debt rated
London, 24 October 2016 -- Moody's Investors Service (Moody's) has today affirmed the B2 corporate
family rating (CFR) and B2-PD probability of default rating (PDR)
of Decomeubles Partners SAS, a holding company owning 100%
of French furniture retailer BUT SAS. At the same time, the
agency has assigned a B3 (LGD 4) rating to the proposed EUR380 million
worth of senior secured notes due 2024 to be issued by Mobilux Finance
SAS. The outlook on all ratings is stable.
Mobilux Finance SAS is a new holding company established in connection
with the proposed acquisition of French furniture retailer BUT SAS by
an investment consortium. Mobilux Finance SAS will be fully owned
by Mobilux 2 SAS, which is the top entity of the new restricted
group. Upon the successful closing of the bond transaction and
the change of control of BUT, Moody's expects to move the
CFR from Decomeubles Partners SAS to Mobilux 2 SAS. Moody's will
also withdraw the B3 instrument rating assigned to BUT SAS' existing
senior secured notes when these are redeemed.
The rating action follows the announcement on 29 June 2016 that BUT's
shareholders - Colony Capital, Goldman Sachs European Special
Situations Group and OpCapita - have entered into exclusive negotiation
with an investment consortium for the disposal of BUT, based on
a binding and irrevocable offer. The consortium comprises private
equity firm Clayton, Dubilier & Rice (CD&R) and WM Holding,
an investment company associated with the XXXLutz group, an Austrian
The proceeds from the proposed issuance will be used to (1) repay existing
notes previously issued by BUT SAS, (2) partly pay the equity value
and current net debt of the company, and (3) pay related refinancing
fees and expenses.
--B2 CFR --
Decomeubles Partners SAS' ("BUT" or "the company")
B2 CFR reflects (1) its extensive store network, (2) its good brand
recognition, (3) growing market share in the fragmented French home
equipment market, and (4) good free cash flow generation compared
to peers. Moody's positively notes that the transaction is
occurring at a time when the company has delivered a solid trading performance,
with net revenues up 13.9% in the fiscal year 2016 (ending
30 June 2016) and EBITDA (as adjusted by the company) up 30% during
the same period, mainly reflecting organic growth, network
expansion and recovery of the French furniture market.
BUT has continuously increased its share of the market in the past two
years, mostly on the back of store openings and positive like-for-like
growth. BUT continued to display positive like-for-like
sales growth for the eighth consecutive quarter in the final quarter of
its last financial year (ended 30 June 2016), driven by a further
sales recovery in the French furniture market, stronger in-store
execution, additional footfall driven notably by a greater portion
of decorative products and increased commercial communication.
Moody's expects BUT's profits will continue to improve over the
next 12 to 18 months on the back of store openings and positive like-for-like
growth though at a more moderate pace than in recent quarters.
Balancing these elements are (1) BUT's modest size and concentration
on the French market, (2) exposure to discretionary spending and
to a structurally competitive furniture segment, (3) its weak profitability
levels compared to peers and (4) its highly leveraged capital structure.
The proposed transaction involves an incremental debt of around EUR134
million which will translate into a pro-forma leverage (defined
as gross debt/EBITDA) of around 5.5x (as adjusted by Moody's)
on the basis of the 2016 results (ended 30 June 2016) and excluding the
integration of Yvrai's stores. Nevertheless, the rating
also incorporates BUT's modest deleveraging prospects, as
illustrated by Moody's expectations that leverage will trend towards
5.0x in the next 12 to 18 months, reflecting the contribution
from Yvrai as well as further moderate profitability improvement.
For its calculations of leverage, the rating agency considers the
shareholder loan issued between Mobilux 2 SAS and Mobilux 1 SAS to meet
the criteria for full equity credit as set by the rating agency's
methodology published in March 2015.
Pro forma for the proposed transaction, BUT's liquidity profile
is adequate. The proposed refinancing will leave the company with
a modest opening cash balance of around EUR31 million. However
BUT has also access to a covenanted EUR100 million revolving credit facility
("RCF", maturing in 2022, unrated) fully available at closing
of the transaction. This mitigates the company's large working
capital requirements, due to the seasonality of BUT's operations,
notably in the run up to Christmas sales and promotional periods.
Moody's expects the company will maintain a positive free cash flow
generation going forward, as seen in recent quarters, thanks
to further moderate EBITDA growth and continued efforts to lower working
capital requirements (but not to the same extent as in the last financial
year). However, capex spending are expected to further increase
on the back of continued store refurbishments and store network expansion
in areas where the company is under-represented.
--B3 RATING ON SENIOR SECURED NOTES/B2-PD PDR—
The B3 rating (LGD4) assigned to the company's proposed senior secured
notes due 2024 reflects their position behind a committed EUR100 million
super senior revolving credit facility (RCF) and a significant amount
of trade payables, which both rank ahead of the senior secured notes
in the debt waterfall. The proposed notes and the super senior
RCF will ultimately benefit from a similar maintenance guarantor package,
including upstream guarantees from guarantor subsidiaries representing
approximately 88% of BUT's consolidated EBITDA. Both instruments
will also be secured, on a first-priority basis, by
certain share pledges, intercompany receivables and bank accounts
of BUT International S.A.S. However, the notes
will be contractually subordinated to the super senior RCF with respect
to the collateral enforcement proceeds. Moreover, Moody's
cautions that there are significant limitations on the enforcement of
the guarantees and collateral under Luxembourg and French laws.
The PDR of B2-PD reflects the use of a 50% family recovery
assumption, consistent with a capital structure including a mix
of bond and bank debt. The capital structure has limited covenants
overall with the lenders relying only on incurrence covenants contained
in the senior secured notes indentures as well as one maintenance covenant
defined as net leverage, with ample headroom at the time of issuance
of the bond. This covenant will only be tested if outstanding borrowings
under the super senior RCF are equal to or greater than 35% of
the overall commitment.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that BUT's
operating profit will continue to improve supported by (1) positive like-for-like
growth helped by a recovery in the French furniture market, (2)
further market share gains on the back of network expansion, (3)
successful execution of the commercial strategy and (4) ongoing focus
on cost efficiency in particular in the areas of procurement.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's would consider upgrading BUT's rating if the company (1)
demonstrates its ability to sustainably enhance its profitability,
(2) while maintaining its market shares, (3) sustains its positive
free cash flow generation and (4) demonstrates a balanced financial policy
between creditors and shareholders. Quantitatively, stronger
credit metrics, such as a Moody's-adjusted (gross)
debt/EBITDA ratio well below 4.5x and a Moody's-adjusted
EBIT/interest expense comfortably above 1.75x could trigger an
Conversely, the rating could be downgraded if (1) BUT's free
cash flow generation was negative for a prolonged period of time as a
result of a weakened operating performance or higher-than-expected
capital expenditures; or (2) the company demonstrates a more shareholder-friendly
financial policy. Quantitatively, a Moody's-adjusted
(gross) debt/EBITDA ratio in excess of 5.5x and a Moody's-adjusted
EBIT/interest expense trending below 1.25x could trigger a downgrade.
Any weakening of the liquidity profile would also exert downward pressure
on the rating.
The principal methodology used in these ratings was Retail Industry published
in October 2015. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in France (Emerainville), BUT is one of France's largest
home equipment retailers, with revenues and EBITDA (as adjusted
by the company) of respectively EUR1.4 billion and EUR95 million
in the 12 months to 30 June 2016. BUT's business model is based
on a one-stop shop concept, offering its customers furniture,
electrical/home appliances and home decoration products.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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