Moody's rating remains "B1" even with the recap
https://www.moodys.com/research/Moodys-affirms-Staples-B1-CFR-assigns-ratings-to-proposed-refinancing--PR_397406
New York, March 26, 2019 -- Moody's Investors Service ("Moody's") today affirmed Staples, Inc.'s B1 Corporate Family Rating and B1-PD Probability of Default ratings. Moody's also assigned a B1 rating to the company's proposed $3.2 billion seven year senior secured term loan, a B1 rating to its proposed $750 million seven year senior secured notes, and a B3 rating to its proposed $1.375 billion eight year senior unsecured notes.
Proceeds from the proposed debt offering will be used to refinance Staples' existing secured term loan due 2024 and senior unsecured notes due 2025, and fund a $1.021 billion distribution to the company's owner, affiliates of Sycamore Partners. The B1 rating on the Staple's existing secured term loan and B3 rating on its existing senior unsecured notes will be withdrawn upon closing. Staples' existing $1.2 billion ABL facility due 2022 (not-rated) will not be affected by the refinancing and will remain in the company's capital structure.
The affirmation of Staples' B1 Corporate Family Rating reflects the company's solid performance since the LBO in September 2017 and its ability to quickly reduce leverage incurred to fund the proposed dividend recap through a combination of debt repayment and continued EBITDA growth. Moody's estimates pro-forma adjusted debt/EBITDA will rise to around 5.5x as a result of the dividend recapitalization from an estimated 4.9x at fiscal year ended February 2019. This estimate also includes debt and EBITDA associated with Staples' recently-closed acquisition of Dex Imaging, Inc. and fees from the company's shared services agreement with Essendant, Inc. Over the next year, EBITDA will increase from a combination of recent acquisitions, continued cost efficiencies and modest EBITDA growth in the core business. This growth together with debt repayment using Staples' significant free cash flow will bring leverage down to around 4.6x by fiscal year end February 2020.