Moody’s Investors Service assigned an A1 rating to Nike Inc.’s proposed $1.5 billion senior unsecured note offering and a (P)A1 rating on its unsecured shelf program. The company’s existing A1 senior unsecured rating and Prime-1 commercial paper ratings are unchanged. The rating outlook is stable.
Proceeds from this offering are expected to be used for general corporate purposes, which may include discharging or refinancing of debt, working capital, capital expenditures, share repurchases, as yet unplanned acquisitions of assets or businesses and investments in subsidiaries.
“While Nike’s proposed debt offering will significantly increase funded debt levels, we expect that the Company will continue to maintain strong credit metrics and excellent liquidity,” said Moody’s Assistant Vice President Mike Zuccaro. “Nike’s ratings reflect our expectation for consistent execution of growth initiatives combined with maintenance of conservative financial policies.”
Moody’s said Nike’s A1 senior unsecured rating reflects the company’s significant scale in the global athletic industry with revenues in excess of $33 billion as of the latest twelve months ended August 31, 2016; the ownership of the Nike brand, whose distinctive “swoosh” logo is one of the most recognized consumer brands in the world; and the company’s solid track record of demonstrating revenue, earnings and cash flow growth for an extended period of time. The rating also reflects the company’s strong credit metrics, solid liquidity profile and its maintenance of balanced financial policies, which is expected to continue. The rating is constrained by the inherent cyclicality and changing consumer preferences in the global footwear and apparel industries.
The rating outlook is stable. Moody’s said, “We expect Nike will maintain its leading market position across products and geographies, though it can be impacted by macroeconomic conditions in key markets. We also expect the company to maintain balanced financial policies and to retain its solid liquidity profile.”
An upgrade is unlikely in the near term, given the company’s focus on a single brand and the inherent risks in the apparel and footwear industry. Upward rating momentum would build if Nike is able to make meaningful market gains and continue to diversify across product categories, distribution channels and geographies while maintaining strong credit metrics.
Ratings could be downgraded if the company were to become meaningfully more aggressive in its financial policies, or if operating performance were to significantly weaken. Quantitatively, ratings could be lowered if debt/EBITDA was sustained above 1.25 times.
