Kohl's adjusted leverage has moved from the low-2.0x range in 2012 to 2.5x primarily on EBITDA declines. Kohl's continues to generate good free cash flow after dividends (FCF) which is expected to be $750 million to $800 million in 2016 and $400 million to $450 million annually in 2017-18. FCF is expected to be used for share repurchases rather than debt paydown. As a result, adjusted leverage is expected to trend towards the high-2.0x.
A positive rating action would occur if a reacceleration of comps drove EBITDA above $2.6 billion, yielding adjusted leverage in the low-2.0x, Fitch said.
A negative rating action could result if EBITDA margin declined below 11 per cent on low-single digit sales declines, resulting in EBITDA below $2.0 billion and adjusted leverage above 3.0x.
Kohl's liquidity is supported by its strong cash balance of $700 million as of January 30, 2016, and a $1 billion senior unsecured revolving bank credit facility due in July 2020. Kohl's has no debt maturities prior to 2021.
Fitch projects free cash flow after dividends (FCF) of $750 million to $800 million in 2016 due to positive working capital contribution of $200 million (versus a drain of $400 million in 2015) and FCF of $400 million to $450 million annually in 2017-18 assuming modest working capital improvement. (SH)
Fibre2Fashion News Desk – India