Moody’s Assigns A3 Ratings To VF’s Proposed Euro Notes

Moody’s Assigns A3 Ratings To VF’s Proposed Euro Notes

Moody’s Investors Service assigned A3 ratings to V.F. Corporation’s proposed senior unsecured Euro notes.

Proceeds from the new notes will be used to refinance existing debt, fund one or more Eligible Projects designed to contribute to selected Sustainable Development Goals (each, an “SDG”) as defined by the United Nations and for general corporate purposes. The assigned ratings are subject to review of final documentation.

“The transaction is credit positive because it will extend the company’s debt maturity profile and likely result in significant cash interest savings for the company,” stated Moody’s Vice President, Mike Zuccaro.

Ratings Rationale
Moody’s said VF’s credit profile is supported by its significant scale as one of the largest apparel companies in the world, with broad diversification in the industry by product and distribution channel. It also owns several well-known brands with strong market positions in their segments such as Vans, The North Face, Timberland, and Dickies, with a successful long term track record of driving sustainable organic revenue growth across its portfolio. VF has maintained a more conservative financial policy over the past two years as it has reshaped its brand portfolio; cutting share repurchases and significantly reducing acquisition debt and leverage with free cash flow and net cash proceeds received as part of the May 2019 spin-off of its Jeans and VF Outlet businesses. VF is constrained by its willingness to pursue growth through acquisition which, in some cases, resulted in the company taking on temporarily high levels of short term debt—as it did with the acquisition of Williamson-Dickie in October 2017.

The stable outlook reflects Moody’s expectation that the company will maintain its strong position in the global apparel industry and sustain longer-term positive trends in revenue growth while continuing to generate healthy operating margins. The stable outlook also reflects Moody’s expectation that the company will maintain balanced financial policies, but tempered by the expectation that it will consider growth by acquisition when suitable opportunities arise.

Ratings could be upgraded if VF continues to demonstrate sustained organic revenue growth across its portfolio of brands while maintaining conservative financial policies and lower debt levels. Specific metrics include lease-adjusted debt/EBITDA sustained below 1.5 times and retained cash flow/net debt sustained in the low 40 percent range.

Ratings could be downgraded if VF’s financial policies were to become more aggressive, such as pursuing additional share repurchases or undertaking additional large debt-financed acquisitions while leverage remains elevated. Specific metrics include lease-adjusted debt/EBITDA sustained above 2.0 times, interest coverage below 6.5 times and RCF/Net Debt below 30 percent.