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Fitch Rates eBay's Senior Notes 'BBB'; Outlook Stable
May 30, 2017 / 6:56 PM / 6 months ago

Fitch Rates eBay's Senior Notes 'BBB'; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, May 30 (Fitch) Fitch Ratings has assigned a 'BBB' rating to eBay, Inc.'s (eBay) issuance of benchmark-size multi-tranche senior notes with three- to 10-year maturities. eBay intends to use the proceeds for repayment of existing notes due 2017, and general corporate purposes which could include M&A and share buybacks. Fitch's action affects $11 billion of total debt including the $2 billion undrawn revolving credit facility (RCF). The Rating Outlook is Stable. A full list of current ratings follows at the end of this release. KEY RATING DRIVERS The ratings and Outlook reflect Fitch's expectations for solid operating performance, despite a challenging operating environment. Fitch expects low single-digit foreign exchange (FX) neutral revenue growth over the intermediate term, driven by increasing gross merchandise value (GMV). Fitch anticipates investments in cataloguing unstructured data to improve search results and user experience. Fitch expects profitability will remain solid with operating EBITDA margin between 38% and 40%. As a consequence, Fitch expects credit protection measures to remain solid with total leverage (total debt to operating EBITDA), pro forma for the issuance, in the 2.5x - 3x range. Cash location could drive continued borrowing over the longer term, although Fitch expects total leverage will remain below 3x. Fitch also expects the continuation of robust annual FCF of more than $2 billion and anticipates that eBay will use FCF for share repurchases and, to a lesser extent, acquisitions through the intermediate term. We expect continuing share repurchases in line with eBay's commitment to buying back at least 50% of FCF of stock. Fitch expects eBay will execute limited share repurchases to offset dilution beyond the immediate term, given significant cash balances outside of the U.S. The ratings and Outlook are supported by: --Fitch's expectations for significantly higher profitability versus retail industry peers and low capital intensity resulting in strong and consistent FCF; --Solid financial flexibility supported by $6.75 billion of cash and cash equivalents, $1.57 billion of which is located within the U.S., and more than $2 billion of annual FCF; --eBay's leading e-commerce platform, especially for specialized product offerings, with strong brand recognition and technology capabilities; --Large active-accounts base and focus on serving small- to medium-sized sellers provides significant customer diversification. Ratings concerns center on Fitch's expectations for: --Revenue growth challenges from increased competition including Amazon and other local e-commerce platforms in international markets; --The company gradually increases total debt to fund share buybacks given most of its cash and FCF generation are offshore; --Ongoing challenges to gaining e-commerce platform traction in faster-growing developing markets with rapid mobile adoption and local competition. KEY ASSUMPTIONS --Low single-digit FX neutral-revenue growth through the intermediate term; --Consistent profitability with operating EBITDA margin of 38% to 40%; --Capital spending remains elevated to accelerate growth opportunities, including investments in structured, catalogued merchandise; --Incremental debt issuance to support share repurchases and acquisitions, given cash location. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a positive rating action include: --Management commits to curtailing share repurchases and managing debt to maintain total leverage closer to 2x; --Sustained low- to mid-single-digit FX-neutral organic revenue growth resulting in higher and more predictable FCF. Future developments that may, individually or collectively, lead to a negative rating action include: --Fitch's expectation that operational weakness or more aggressive financial policies will result in total leverage sustained above 3x; --Sustained negative FX-neutral revenue growth, indicating an uncompetitive product offering. LIQUIDITY Fitch believes eBay's liquidity was strong at March 31, 2017 supported by: --$6.75 billion of cash and equivalents, of which $1.57 billion was in the U.S.; --$2 billion undrawn RCF expiring November 2020. Fitch's expectations for more than $2 billion of annual FCF also supports liquidity. Total debt as of March 31, 2017 was $9 billion and consisted of: --$1 billion 1.35% notes due 2017; --$450 million floating rate notes due 2017; --$750 million 2.50% notes due 2018 --$400 million floating rate notes due 2019; --$1.15 billion 2.2% notes due 2019; --$500 million 3.25% notes due 2020; --$750 million 2.875% notes due 2021; --$750 million 3.8% notes due 2022; --$1 billion 2.6% notes due 2022; --$750 million 3.45% notes due 2024; --$750 million of 4% notes due 2042; --$750 million of 6% notes 2056. FULL LIST OF RATING ACTIONS Fitch has rated the benchmark size multi-tranche notes offering 'BBB'. Fitch currently rates eBay as follows: --Long-Term Issuer Default Rating (IDR) 'BBB'; --Senior unsecured revolving credit facility 'BBB'; --Senior unsecured notes 'BBB'; --Short-term IDR and commercial paper 'F2'. Contact: Primary Analyst Alen Lin Senior Director +1-312-368-5471 70 West Madison Street Chicago, IL 60602 Secondary Analyst Jason Pompeii Senior Director +1-312-368-3210 Committee Chairperson Peter Molica Senior Director +1-212-908-0288 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Date of Relevant Rating Committee: Feb. 9, 2016 Additional information is available on Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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