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Global Credit Research - 29 Sep 2010
Approx ARS 60 million debt affected
Buenos Aires, September 29, 2010 -- Moody's Latin America assigned a B2 global scale rating and a Aa3.ar
Argentina national scale rating to Garbarino's proposed ARS 60 million
local bond issuance. At the same time, Moody's affirmed
Garbarino's corporate family rating of B2 on its global scale and
Aa3.ar on the Argentina national scale rating and on the ARS 15
million loan with Banco de la Nacion Argentina. All of the ratings
assigned are local currency ratings. Proceeds from the notes will
be used principally for Garbarino's working capital needs,
to refinance outstanding short-term debt and for general corporate
purposes. The outlook for all ratings continues to be positive.
"The B2 and Aa3.ar ratings are underpinned by Garbarino's
brand strength, dominant position in the Argentinean retail market,
solid credit metrics and diversified product line, which has allowed
Garbarino to strengthen its market position. Furthermore,
the ratings are supported by Garbarino's strong revenue growth and
funds from operations, which recently benefited from the government-sponsored
installment payment scheme for consumer electronics products as well as
from the 2010 World Cup Soccer event" said Moody's AVP Analyst,
Veronica Amendola. "Additionally, the outlook reflects
Garbarino's strong credit metrics, adequate liquidity profile
and low adjusted debt leverage" continues Amendola.
Also a positive for the ratings is the high proportion of credit card
sales where the delinquency risk is borne by the credit card issuers.
Credit card sales often allow customers to pay in several monthly installments.
Credit negatives partly offsetting these strengths include Garbarino's
low geographic diversity, relatively small scale when compared against
its global peers and its reliance on continually renewing uncommitted
bank credit lines. Also constraining the ratings is Moody's expectation
that Garbarino's margins are subject to potential pressure,
given the country's high inflation rates.
Garbarino's B2 local currency rating reflects its global default
and loss expectation, while the Aa3.ar national scale rating
reflects the standing of Garbarino's credit quality relative to
its domestic peers. Moody's National Scale Ratings (NSRs) are intended
as relative measures of creditworthiness among debt issues and issuers
within a country, enabling market participants to better differentiate
relative risks. NSRs in Argentina are designated by the ".ar"
suffix. Issuers or issues rated Aa3.ar present above-average
creditworthiness relative to other domestic issuers. NSRs differ
from global scale ratings in that they are not globally comparable to
the full universe of Moody's rated entities, but only with other
rated entities within the same country
The positive outlook reflects Moody's expectation that Garbarino
will be able to increase revenues and earnings over the near term based
on its efficiency and commercial initiatives. The rating outlook
also reflects Moody's expectation that Garbarino will continue to
successfully implement its business model, thus allowing the retailer
to preserve adequate access to external financing sources to meet its
short-term debt obligations while maintaining adequate levels of
cash generation in relation to debt.
An upgrade of the ratings could result from a continued strengthening
of Garbarino's revenues in 2010 and 2011 while maintaining its operating
margins and modest adjusted leverage. In addition, an extension
of the current credit cards installment payment scheme could bring upward
pressure to the ratings. Quantitatively, upward momentum
could result if Garbarino's total adjusted debt to EBITDA can be sustained
at below 2.5 times (2.8 times as of the last twelve months
ended in April 30, 2010) and EBITDA margin above 9% (8.8%
as of the last twelve months ended in April 30, 2010). Additionally,
a more predictable outlook for economic activity in Argentina would be
important for an upward ratings movement.
The rating outlook is most likely to return to stable if there is reduced
availability of consumer loans in 2011 or if weaker than expected performance
leads to a deterioration in operating margins. Quantitatively,
a downgrade could result from a drop in Garbarino's EBIT margin to below
3.0% on a three-year average basis or a significant
increase in leverage, with total adjusted debt to EBITDA of above
6 times. Indications of a weakening in market share in the domestic
retail market could also result in a downward ratings pressure.
Headquartered in Buenos Aires, Argentina, Garbarino is one
of the largest home appliance retailers in Argentina. With total
revenues of ARS 4.1 billion (USD 1.1 billion) and 4.400
employees as of the last twelve months ended in April 30, 2010,
Garbarino was founded in 1951 and has developed into a widely and well-known
brand name in the local retail market.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Corporate Finance Group
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Latin America, Calificadora de Riesgo
Moody's assigns a B2/Aa3.ar ratings to Garbarino S.A.'s proposed notes. Positive outlook
Cerrito 1186, 11th fl
Buenos Aires C1010AAX
No Related Data.
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