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Rating Action:

Moody's assigns Ba3 ratings to Ripley; stable outlook

04 May 2021

New York, May 04, 2021 -- Moody's Investors Service, ("Moody's") has assigned a Ba3 corporate family rating to Ripley Corp S.A. (Ripley) and a Ba3 rating to its proposed up to $300 million guaranteed senior unsecured notes. The outlook is stable.

"The Ba3 ratings reflect Ripley's leading market position in Chile and Peru and positive business prospects underpinned by the economic recovery in these markets." said Sandra Beltrán, Moody's VP Senior Analyst. "We consider Ripley to be well positioned to capture these opportunities through its integrated omnichannel financial retail approach" added Beltrán.

The notes will be senior unsecured obligations benefiting from initial guarantees from Ripley Financiero Ltda., Ripley Inversiones II S.A. and Inversiones Padebest Peru S.A.C. Currently representing 100% of revenues, 98.5% of total assets and 86.0% of total liabilities. Moody's currently estimates secured debt at 15% of total consolidated debt, mainly related to Shopping malls. The notes are rated at the same Ba3 level of the corporate family rating, reflecting Moody's consideration that going forward effective and structural subordination of the notes will remain below 20%.

The rating of the proposed notes assumes that the issuance will be successfully completed and that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date. It also assumes that these agreements are legally valid, binding and enforceable.

This is the first time Moody's assigns ratings to Ripley.

The rating assignment incorporates governance considerations, including the company's focus in improving its capital structure through a liability management plan that includes the currently proposed issuance. Through this plan, Ripley expects to rapidly de-lever through pre-COVID crisis levels. The company has been publicly listed in Chile since 2005 with a long track record operating under the current business model configuration. As a publicly listed entity, transparency is supported by timely and high quality financial reporting. On its banking division the company faces high regulatory oversight that further supports adequacy of corporate governance practices. Risk management practices include maintaining an adequate currency mix in its capital structure. Currently 71% of non-bank debt is denominated in Chilean Peso or Unidades de Fomento (Chilean inflation indexed unit) and the balance in Peruvian Soles. Banco Ripley is mainly deposit funded also reducing funding risk. The company has recently paid dividends at a 30% payout ratio, the minimum required by Chilean law. CEO is member of the Calderón family, Ripley's controlling group through a 52.5%. However, Chairnan of the board is a separate function from the CEO and is a non-family member. Five out of nine members of the board are independent.

RATINGS RATIONALE

Since Ripley developed online capabilities ahead of the crisis, it will be able to meet the accelerated change of the competitive environment. The efficiencies Ripley obtains from its retail-financial services integrated business model will also support strong profitability and cash generation in the longer term. The rating also considers Ripley's portfolio of shopping malls in Peru, a market with positive business prospects even for brick and mortar retail. Conversely, Ripley's ratings are limited by weak credit metrics.

Given the non-essential nature of Ripley's offering, it was largely impacted since the end of 2019 when social protests affected Chile's consumption and was later emphasized by the irruption of the COVID-19 pandemic. As a result, leverage raised significantly. Ripley is focused in reducing leverage, but its plan still entails execution risk as it involves additional cash from shopping malls openings and sale of assets. Additionally, operating performance will remain pressured in the face of COVID-19. Ripley's non-banking business leverage measured as gross debt to EBITDA including Moody's standard adjustments was 7.5 times in 2019 affected by the social unrest in Chile by the end of the year and 21.9 times in 2020. In 2021, when pandemic will continue to drag performance, the company expects leverage to remain high at close to 16.5 times. It will only be in 2023 when leverage will likely decline to below 5.0 times, consistent with the Ba3 rating assigned.

Recovery prospects are positive underpinned by expected economic growth in both, Chile and Peru. Yet economic and political risk remain high. Main risks for the retail sector are related to profitability rather than revenue growth or physical expansion. Price sensitivity remains high threatening profitability and cash generation. Even before the pandemic, social unrest had aggravated low economic growth and weak consumption in Chile, whose GDP contracted 6.0% in 2020 but will recover by roughly 5.8% growth in 2021. Recent political turmoil and a general election of a new government will drag on Peru's economic recovery, with growth rebounding by just 9.0% in 2021 after a 12.3% contraction in 2020. Additionally, the COVID-19 situation in the region continues to be fluid. Lockdown measures were just re-installed in Peru this year and the contagions recently peaked up in Chile despite a strong vaccination campaign.

Although Ripley has adequate liquidity, the company will need to refinance some CLP289 billion at the non-bank business level through 2023 if not able to cover with proceeds from the proposed issuance or the sale its stake in Nuevos Desarrollos, a Chilean shopping malls portfolio. As of April 2021, Ripley has already paid some PEN 147 million and has renewed CLP 45 billion. The rating entails governance considerations such as the company's refraining from cash distributions and raising debt amid the COVID-19 crisis as prudential financial measures. Moody's considers Ripley to have superior alternative sources of liquidity when compared to rated corporate peers in Latin America, given its portfolio of fully owned, high quality shopping malls in Peru (three operating and two under construction).

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The rating could experience upward pressure if the company is able to sustain its market position, and operating performance proves to be recovered allowing the company to strengthen cash generation. Quantitatively, upward momentum could result if Ripley's adjusted leverage, measured by Total Debt to EBITDA, were to decrease to below 4.0 times and EBIT/Interest expense ratio were to be above 2 times on a sustained basis.

Conversely, a rating downgrade could be triggered if the company fails to reduce leverage as projected or if its credit metrics deteriorate materially whether due to operating difficulties or further potential deterioration in its market-leading position. Specifically, a downgrade could result if adjusted leverage remains above 5 times and EBIT/Interest expense ratio below 1 time beyond 2022.

The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Santiago de Chile, Ripley Corp is one of the largest retail companies in Chile and Peru. The company operates through three segments: retail business comprised of a department stores chain and an e-Commerce platform including a marketplace; the banking business managed by Ripley Bank and mainly focused on the consumer sector and the real estate business as Ripley participates in the ownership of shopping malls in Chile and in Peru. Ripley Corp currently operates 77 stores in Chile and Peru, with a total selling space of over 470 thousand m2, 14 mall with over 325 thousand m2 of owned GLA and more than 1.5 million credit cards with debt. As of December 30, 2020 consolidated revenues were US $1.9 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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 the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sandra Beltran
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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