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Rating Action:

Moody's assigns Baa3 rating to Steinhoff's new notes

Global Credit Research - 13 Jul 2017

London, 13 July 2017 -- Moody's Investors Service, ("Moody's") assigned Baa3 rating to the new senior unsecured notes that Steinhoff Europe AG plans to issue which will be unconditionally and irrevocably guaranteed by Steinhoff International Holdings N.V. (Steinhoff). The rating outlook is stable.

RATINGS RATIONALE

The notes offering is consistent with Moody's expectations of Steinhoff's funding plans as incorporated in the company's ratings, including the Baa3 long term issuer rating and Aa1.za national scale issuer rating assigned at Steinhoff Investment Holdings Limited. The net proceeds of the offering will be used primarily to repay existing financial indebtedness. The benchmark size notes issuance (approximately EUR500 million) will rank pari-passu with all other existing and future unsecured and unsubordinated debt obligations of Steinhoff.

Steinhoff's Baa3/Aa1.za ratings reflect its (1) large scale; (2) broad business and geographic diversification; and (3) ability to extract volume-driven cost benefits from a vertically integrated supply chain and retail offering which deliver EBITDA growth.

The Baa3/Aa1.za ratings and stable outlook factor Steinhoff's strong liquidity profile, supported by (1) a large cash surplus; (2) listed investments and a largely unencumbered property portfolio with a combined value that exceeds reported net debt; (3) listed convertible debt comprising a third of total debt, with a strong track record of equity conversion. This, together with a developing track record of acquisitions funded with an appropriate debt-equity mix, ensures alignment of the credit profile with a Baa3 rating.

The ratings and outlook consider Steinhoff's position in the mass discount market, where it continues to grow market share and holds between the top and third-largest positions in its various operating regions and segments. Steinhoff's profile of operations offer resilience reflecting exposure to better performing economies in Europe and—following the acquisition of Mattress Firm in September 2016—the US economy with a focus on the mass discount market which has demonstrated its insulation against economic down turns.

A decentralized management model mitigates inherent risks associated with an ever evolving organizational structure spanning a number countries and business sectors with integrating multiple acquisitions. Management teams remaining post acquisition allows for a seamless transition and are aligned with group operating performance success through remuneration comprising a considerable long-term equity award component.

Moody's stable outlook on Steinhoff's ratings presumes that acquisition finance will be balanced between debt and equity, ensuring with credit metrics over a 12- 18 month period will track within our guidance corridor for the Baa3 rating. The stable outlook further reflects the company's significant liquidity optionality, providing Steinhoff's credit metrics with an additional buffer.

Moody's would consider an upgrade to a Baa2 rating in the event that Steinhoff is able to further improve its credit strength, as indicated by its debt/EBITDA ratio reducing sustainably below 2.5x and a retained cash flow (RCF)/net debt ratio above 30%. Such an upgrade would also be based on favourable forward-looking economic expectations for Steinhoff's operating regions and segments.

Downward pressure on the Baa3 rating would arise upon a continual deterioration of earnings and cash flow contrary to current expectations, accompanied by a weakening of Steinhoff's business profile. Evidence of this could be reflected by sustained negative free cash flow, a failure to maintain leverage at levels of debt/EBITDA below 3.5x, or retained cash flow/net debt falling below 25%. Likewise, large debt-funded M&A activity or a weakening of Steinhoff's liquidity profile, could trigger negative rating action.

The principal methodology used in this rating was Retail Industry published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Local Market analyst for this rating is Douglas Rowlings, +971-4-237-9543.

Incorporated in the Netherlands (Aaa stable), Steinhoff is a vertically integrated retailer servicing value-conscious consumers and also invests in complementary businesses. Steinhoff is a parent company with full ownership of Mattress Firm and Steinhoff Finance Holding GmbH which houses its European, UK and Asian Pacific operating assets, and Steinhoff Investment Holdings Limited, housing its African operating assets. For the last 12 months ended 30 March 2016, Steinhoff recorded revenues of around EUR20 billion and Moody's-adjusted EBITDA approaching EUR3.5 billion, with its European, UK, United States and Australasian operations contributing 76% to group revenues.

REGULATORY DISCLOSURES

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

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.

Vincent Gusdorf
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

David G. Staples
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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