Fitch Ratings has placed Staples' on watch with negative implications after the number two office supply retailer in the U.S. announced plans to acquire the top European supplier, Guilbert. The move reflects the potential for increased financial leverage, the risks connected with Staples' increased exposure to the European markets and the company's aggressive acquisition mode. The watch covers Staples' $600 million bank facility and its $200 million in senior notes, both of which are rated BBB+.
Staples has indicated that it would finance the EUR825 million acquisition of Guilbert with a combination of cash, debt and equity. Staples had $476 million in outstanding debt as of last month, but Fitch analyst Philip Zahn said it is hard to predict how the acquisition will affect the company's leverage. The rating agency expects to reach a decision in the third quarter after the final financing plan is revealed.
Deborah Hohler, a spokeswoman for Staples, said the company was "somewhat surprised" by the watch, citing Staples' strong cash flow and consistent performance. She claimed that speculation over the financing of the Guilbert acquisition might have triggered Fitch's alarm. She declined to discuss details of the financing plan.
* Moody's Investors Service has upgraded its rating on Anteon International's $143 million secured credit facility from B1 to Ba3. Moody's was prompted by Anteon's improved financial situation, which stemmed from a $75.5 million initial public offering this past March. The rating agency also attributed Anteon's satisfactory margins, solid returns, good liquidity and steady cash flow to the boost.
Vince Kiernan, v.p. of finance at Anteon, attributed the upgrade to the "organic growth of the company and improved profitability." He also cited the IPO, the proceeds of which were used to pay down debt. Current total debt is approximately $109 million.
The Fairfax, Va., company provides information technology and systems engineering services to the federal government, and Moody's factored trends toward outsourcing and increased federal spending into the ratings. The rating agency, however, acknowledges that Anteon's ratings are still confined by the company's relatively small size versus its competitors, its historically acquisitive growth strategy and the absence of tangible equity.
* Moody's has downgraded National Equipment Services' $402 million revolving credit facility and its $82 million term loan from B2 to B3. Moody's attributed the downgrade to NES' deteriorating performance due to the weakened demand for rental equipment in the manufacturing sector, as well as uncertainty surrounding the company's ability to refinance its maturing debt obligations. The outlook remains negative.
The Evanston, Ill., company faces maturities on a $650 million credit facility and $275 million in senior subordinated notes within the next 18 months. Declines in revenue and cash flow, however, are constraining NES' financial flexibility, and the company may violate leverage covenants if it is unable to get an amendment from its bank group. Combine that with the current tight credit environment and volatility in the capital markets and the company's ability to refinance becomes questionable. NES officials did not return calls.