NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to eBay, Inc.'s (eBay) proposed issuance of up to $3 billion in senior unsecured notes with various maturities. Use of proceeds is for general corporate purposes although Fitch expects a portion of this offering to effectively refinance the company's $400 million in 0.875% notes which will mature in October 2013.
eBay's ratings reflects the company's leading e-commerce platform; its strong position in on-line payments as well as the significant potential growth opportunities for that business both on- and off-line; its significant and consistent free cash flow (FCF) generation; and its relatively conservative balance sheet management.
The ratings incorporate expectations that eBay will limit leverage to 1x or below. Pro forma for an estimated $3 billion issuance (less the $400 million maturity in 2013), Fitch estimates pro forma leverage at 1.1x as of June 30, 2012. However, Fitch expects that solid EBITDA growth over the next 12 months will reduce leverage back below 1x. FCF to total pro forma debt is estimated at 41%. Fitch notes that a portion of eBay's total debt supports its $1.6 billion in consumer loans at Bill Me Later.
Fitch's primary credit concern of eBay continues to be the longer-term potential to separate PayPal from eBay Marketplaces. Fitch believes that as PayPal outgrows Marketplaces in the long term, it will represent a stronger credit profile due to a more stable business, more defensible market position and the business need for a strong rating to access cost effective capital. In the near term, Fitch believes there are quantifiable synergies between Marketplaces, PayPal and GSI. Whether those synergies hold as PayPal grows into its potential online and offline is unclear.
As of June 30, 2012, eBay's liquidity was strong and supported by approximately $5.8 billion of cash and equivalents and short-term investments, a majority of which was located overseas. Additionally, the company has $2.6 billion of long-term investments. Fitch believes a greater share of eBay's cash position will be located overseas in the future as a higher proportion of the company's cash flow is generated outside the U.S. due to stronger growth in international markets.
Liquidity is further supported by a $3 billion revolving line of credit maturing in November 2016 and FCF of $1.9 billion in the latest 12 months (LTM) period ended June 30, 2012. eBay's credit facility fully supports its $2 billion commercial paper program which had $550 million in borrowings outstanding.
Fitch expects FCF to be used principally to fund organic growth and potential acquisitions going forward as well as further share repurchases. eBay recently announced that the company's Board of Directors authorized an additional $2 billion share repurchase program. Over the past 12 months, the company has repurchased $877 million in stock.
Total debt as of June 30, 2012, was $2.1 billion and included $400 million 0.875% notes due October 2013, $600 million 1.625% notes due October 2015 and $500 million 3.25% notes due October 2020 as well as approximately $550 billion in commercial paper outstanding.
Fitch currently rates eBay as follows:
--Long-term Issuer Default Rating at 'A';
--$400 million 0.875% senior unsecured notes due 2013 at 'A';
--$600 million 1.625% senior unsecured notes due 2015 at 'A';
--$500 million 3.25% senior unsecured notes due 2020 at 'A';
--Short-term IDR at 'F1';
--$2 billion 4(2) commercial paper program at 'F1'.
The Rating Outlook is Stable.
WHAT COULD TRIGGER A RATING ACTION?
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Further growth and diversification of eBay's business and sources of cash flow.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--The potential to separate the PayPal business from eBay Marketplaces and the potential to add materially greater leverage to the remaining Marketplaces business.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', dated Aug. 12, 2011;
--'Evaluating Corporate Governance', dated Dec. 16, 2012;
--'Rating Global Technology Companies Sector Credit Factors', dated Sept. 20, 2010.
Applicable Criteria and Related Research:
Corporate Rating Methodology
Evaluating Corporate Governance
Rating Global Technology Companies - Specific Rating Factors