London, 27 July 2016 -- Moody's Investors Service, (Moody's) has today affirmed
the Baa2 issuer rating and (P)Baa2 Euro Medium Term Note Program rating
of food retailer Koninklijke Ahold Delhaize N.V. (Ahold
Delhaize), and the Baa2 senior unsecured ratings of its 100%-owned
and fully guaranteed subsidiary Ahold Finance U.S.A.,
LLC. Concurrently, Moody's has affirmed the Baa2 senior
unsecured rating of Delhaize America, LLC., which is
-- following the completion of the merger between Ahold and Delhaize
-- a 100%-owned and fully guaranteed subsidiary of
Ahold Delhaize.
Moody's also affirmed the Baa2 rating of Delhaize Group's
EUR400 million bond due in February 2020, which was hived down to
Delhaize Le Lion / De Leeuw B.V. (unrated), a 100%
subsidiary of Ahold Delhaize, as it is guaranteed by Ahold Delhaize.
Moody's also affirmed the Baa2 senior unsecured ratings of Delhaize
Group, which will be assumed by Ahold Delhaize.
Moody's notes that Ahold Delhaize's issuer rating is a continuation
of the existing Ahold issuer rating, because Ahold -- now renamed
Ahold Delhaize -- is the surviving entity post merger. Delhaize
Group's (Delhaize) Baa2 long term issuer rating was withdrawn.
The outlook on the ratings was changed to positive from stable.
"Our decision to change the outlook on Ahold Delhaize's Baa2 ratings to
positive reflects the completion of the merger on 24 July 2016 between
Ahold and Delhaize, "says Sven Reinke, a Moody's Vice
President -- Senior Credit Officer and lead analyst for
Ahold Delhaize.
"The all-share merger is credit positive because it creates a leading
food retailer in the Benelux, the eastern states of the US,
and some parts of Eastern and South-eastern Europe with larger
scale and improved competitive positions."
RATINGS RATIONALE
Today's rating affirmation and outlook change primarily reflects the completion
of the merger between Ahold and Delhaize, which both companies'
shareholders and all regulatory authorities approved with only relatively
limited conditions. One of these conditions was the disposal of
86 U.S. stores, in order to comply with the requirements
of the United States Federal Trade Commission. Ahold and Delhaize
announced on 14 July 2016 that an agreement with buyers for the 86 stores
was reached. However, the divestures only represent 4.1%
of the Ahold and Delhaize companies' total combined U.S.
store count and 3.2% of the Ahold and Delhaize companies'
combined U.S. 2015 net sales.
The divestures do not change Moody's view that the merger is positive
for the enlarged company's business profile, as the combination
of Ahold and Delhaize creates a leading food retailer in the Benelux,
the eastern states of the US, and some parts of Eastern and South-eastern
Europe. The combination of the two businesses will result in a
financially stronger player in a consolidating industry, where economies
of scale and purchasing power are key success drivers.
The transaction's structure supports the combined entity's credit profile,
as it is an all-share merger without incremental debt. Although
Ahold has paid EUR1 billion via a capital repayment and a reverse stock
split to its shareholders on 21 July 2016 as part of the merger agreement,
it was fully funded with excess cash resources and did not require incremental
debt.
Owing to the strong credit profile of both predecessors prior to the merger,
the all-share transaction structure as well as Ahold's strong
operating performance in Q1 2016 and Delhaize's improving operating
performance in H1 2016, the pro-forma financial profile of
Ahold Delhaize is strong for the Baa2 rating category. For instance,
the company's pro forma adjusted gross debt/EBITDA ratio for the
last 12 months per Q1 2016 stood at 3.0x and its retained cash
flow/net debt ratio was 31.8%. The EUR1 billion capital
repayment and a reverse stock split lowers the ratio only by around 2.7%.
Ahold Delhaize's Baa2 rating is underpinned by its general resilience
as a food retailer and the cash flow stability this brings, as well
as the strength and leadership positions of the company's banners,
especially in the Benelux and the eastern states of the US. Moody's
expects that Ahold Delhaize will continue to generate significant free
cash flows over the next 12-18 months despite EUR350 million of
projected merger-related one-off costs.
Ahold's operating performance remained strong during the first three months
of fiscal 2016, with (1) a 14.7% increase in underlying
operating income (at constant exchange rates) to EUR449 million from EUR390
million in Q1 2015; and (2) materially higher operating cash flow
from continuing operations of EUR563 million versus EUR430 million in
Q1 2015. The strong operating performance was driven by identical
sales growth of 0.8% (excluding gas) in the US and 2.9%
in the Netherlands.
Delhaize's operating performance during the first six months of
fiscal 2016 improved as well, with a 18.2% increase
in underlying operating profit (at constant exchange rates) to EUR468
million from EUR396 million in H1 2015. The materially stronger
operating profit was achieved on the back of comparable store sales growth
of 2.7% in the US, 2.5% in Belgium and
9.7% in South-eastern Europe, as well as cost
savings from the Belgium Transformation Plan.
Ahold Delhaize's liquidity is strong with combined cash and cash
equivalents of EUR3,344 million at the end of Q1 2016 -- EUR2,344
million post the Ahold EUR1 billion capital repayment and reverse stock
split - and an undrawn EUR1.0 billion committed credit facility
that matures in 2021. The company's debt maturity profile
is well balanced and debt maturities over the next 18 months are very
low. In addition, we expect strong free cash flow generation
of at least EUR750 million in 2017 excluding any potential shareholder
remunerations beyond the ordinary dividend payment.
RATIONALE FOR THE POSITIVE OUTLOOK
The positive outlook reflects that Ahold Delhaize's financial profile
is strong for the rating category. It also reflects that a successful
integration of the two predecessors' operations, alongside
the realisation over three years of the targeted EUR500 million run-rate
merger synergies, could further enhance the company's key
credit metrics over the next 12-18 months.
Whilst Ahold Delhaize's strong operating cash flow generation would enable
the company to further improve its financial profile, its relatively
shareholder-friendly financial policy -- which was essentially
assumed from Ahold - could limit the upside potential for its ratings.
WHAT COULD CHANGE THE RATING UP/DOWN
Positive rating pressure could be exerted on Ahold Delhaize's rating if,
after successful integration of Delhaize, the company's adjusted
gross leverage were to remain below 3.25x, and its retained
cash flow/net debt were to remain at least at 25%. The company
would also need to exhibit continued prudence in exercising its shareholder
return initiatives and a continued strong liquidity profile.
Conversely, the rating or outlook could come under negative pressure
if operating underperformance or material debt-financed shareholder
returns were to push Ahold Delhaize's adjusted leverage above 3.75x,
or its retained cash flow/net debt below 20%.
Moody's has withdrawn the rating for its own business reasons.
Please refer to the Moody's Investors Service's Policy for Withdrawal
of Credit Ratings, available on its website, www.moodys.com.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Retail Industry published
in October 2015. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
Koninklijke Ahold Delhaize NV was created by the merger between Ahold
and Delhaize on 24 July 2016. The enlarged group is a leading food
retailer, with total fiscal year 2015 (for the fiscal year ended
03 January 2016) pro forma revenues of EUR62.6 billion.
Ahold Delhaize has strong positions in the Benelux, in the east
of the US, in the Czech Republic, and in South-eastern
European markets of Serbia, Romania and Greece.
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Sven Reinke
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Marina Albo
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454
