New York, October 27, 2020 -- Moody's Investors Service, ("Moody's") today
assigned Tractor Supply Company's ("TSCO" or "Tractor Supply") proposed
senior unsecured note offering a Baa1 rating. The use of the net
proceeds of the senior unsecured notes offering is to repay its senior
credit facilities and for general corporate purposes. The rating
outlook remains stable.
"Tractor Supply's proposed notes offering extends the maturities
in its capital structure", said Senior Credit Officer,
Christina Boni. "The company has historically delivered consistent
sales and operating income growth under various economic conditions and
is expected to continue to benefit from the growing popularity of a more
rural lifestyle, an increased focus on DIY home and land maintenance
as well as the acceleration in pet adoption trends during the pandemic",
Boni added.
Assignments:
..Issuer: Tractor Supply Company
....Senior Unsecured Regular Bond/Debenture,
Assigned Baa1
RATINGS RATIONALE
Tractor Supply's Baa1 senior unsecured rating reflects governance considerations
which include its conservative financial strategy of targeting debt/EBITDA
to be maintained below 2.5x and its curtailment of share repurchases
at the beginning of the coronavirus pandemic. Tractor Supply has
a leading market position as the largest rural lifestyle retailer in the
United States and has grown primarily organically to approximately 2,087
retail stores (1,904 Tractor Supply and 183 Petsense stores) with
national footprint with stores in 49 states. Tractor Supply has
a track record of consistent operating performance through varied economic
conditions and a broad product portfolio which facilitates trip consolidation
for its customers.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of Tractor Supply from the
current weak US economic activity and a gradual recovery for the coming
months. Although an economic recovery is underway, it is
tenuous and its continuation will be closely tied to containment of the
virus. As a result, the degree of uncertainty around our
forecasts is unusually high. We regard the coronavirus outbreak
as a social risk under our ESG framework, given the substantial
implications for public health and safety.
Tractor Supply's liquidity is viewed as excellent. Moody's believes
the company's internal cash generation and existing cash balances will
be ample to fund the company's cash needs over the following twelve months.
As a public company, Tractor Supply has targeted a dividend payout
target ratio of approximately 30% which we expect to continue.
We would anticipate any future share repurchases would be funded only
from excess cash and not debt financed.
The stable outlook reflects the company's ability to consistently grow
sales and operating income historically despite variability in economic
conditions given the non-discretionary nature of many of its products.
Although Moody's expects Tractor Supply's sales trends to normalize as
the US recovers from the pandemic, new customers retained and initiatives
to integrate its digital platform and increase store productivity should
support its operating performance. The outlook also reflects the
company's commitment to a conservative financial strategy.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Ratings could be upgraded if Tractor Supply continues to consistently
improve its sales and operating performance while maintaining excellent
liquidity. Increased scale and continued geographic diversification
would be also be important. Quantitatively, ratings could
be upgraded if debt/EBITDA was sustained below 2.0x, and
RCF to net debt was sustained above 40%.
Ratings could be downgraded in the event that sales and operating performance
came under consistent pressure. Specifically, ratings could
be downgraded in the event debt to EBITDA sustained above 2.75x
or EBIT to interest expense was sustained below 6.0x. The
adoption of a more aggressive financial strategy could also pressure ratings.
Tractor Supply Company, headquartered in Brentwood, TN,
is the largest rural lifestyle retailer in the United States. The
company is focused on supplying the needs of recreational farmers,
ranchers, and all those who enjoy living the rural lifestyle.
As of September 26, 2020, the company operated 2,087
retail stores in 49 states (1,904 Tractor Supply and Del's retail
stores and 183 Petsense retail stores). LTM revenues for the period
ending September 26, 2020 were $9.9 billion.
The principal methodology used in this rating 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.
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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
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.
Christina Boni
VP - Senior Credit Officer
Corporate Finance Group
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
Margaret Taylor
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
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