We believe NIKE's liquidity continues to be exceptional, with sources of cash that likely will exceed uses for the next 12 to 24 months. As of May 31, 2012, short-term investments and cash totaling $3.8 billion supported NIKE's 'A-1' short-term rating. The company's $1 billion revolving credit facility, maturing November 2016, was undrawn as of May 31, 2012. This bank line serves as a backstop for the company's commercial paper program. There were no amounts outstanding under the commercial paper program on May 31, 2012. The company's near-term debt maturities are minimal and may be fully repaid with excess cash on the balance sheet.
Our view of the company's liquidity profile incorporates the following expectations, assumptions and factors:
-- We expect coverage of uses to exceed 2.0x for the next 12 to 24 months.
-- We expect net sources to be positive, even with a 50% drop in EBITDA.
-- NIKE likely can absorb low-probability shocks, based on positive cash flow and current cash sources.
-- We expect continued prudent financial management.
Our rating outlook on NIKE is stable. We expect NIKE's credit measures to remain very strong while supporting the company's ongoing growth initiatives. Additionally, we believe NIKE's operating performance will be relatively stable, given the company's strong global business position, despite a still-uncertain discretionary consumer spending environment.
However, the potential for an upgrade in the next one to two years is limited. We remain uncertain about NIKE's longer-term expectations regarding its corporate governance and financial policies. And we believe the company's products are susceptible to changes in consumer preferences and still-somewhat-weak discretionary consumer spending.
Although unlikely over the next one to two years, we could consider a lower rating if the company undertakes a more aggressive financial policy and takes on debt to repurchase a significant amount of shares, or makes a transformational acquisition such that debt-to-EBITDA leverage were to approach the 2x area. For this to occur, the company would need to increase adjusted debt by over $5 billion assuming EBITDA stays constant.