Moody's lowers Vendex

Moody's Investors Services said it lowered Koninklijke Vendex KBB's senior implied rating to Ba2 from Ba1, issuer rating to Ba2 from Ba1, and the rating of its €200 million senior subordinated notes due 2010 to B1 from Ba3. All ratings remain on review for further possible downgrade.

Moody's said the downgrade relates specifically to the operating issues that were highlighted earlier as being of concern and has accordingly focused on the operating environment and the outlook for the company's various business segments in addition to the company's financial flexibility and the capacity of the company to improve its financial profile.

The downgrade factors in Moody's view that the retail environment in Holland and Belgium will continue to be challenging in 2004 with weak consumer confidence impacting top line growth and increased price competition in particular from the discount segment constraining operating margins across a number of the company's formats.

The rating also reflects the significant achievements made by management in lowering operating costs at V&D which the agency expects should support a significant improvement in the operating performance of this business segment in the current financial year. However, given the tough retail environment the agency considers the business is likely to struggle to return to profitability over the intermediate term.

The rating also reflects Moody's view that Vendex's credit metrics as of January 2004 (total coverage at 1.7 times and net adjusted debt / EBITDAR at 4.9 times) are only expected to improve modestly over the intermediate term. Such metrics would position the rating more in line with a Ba2 rating on a senior implied basis.

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