Moody's rates Edcon notes B2, Caa1

Moody's Investors Service said it assigned a provisional B2 corporate family rating and a B2 probability-of-default rating to Edcon Holdings (Proprietary) Ltd., a provisional Caa1 (LGD5, 89%) rating to its €650 million senior notes due 2015 and a provisional B2 (LGD4, 57%) rating to Edcon (Proprietary) Ltd.'s €1.18 billion senior secured floating-rate notes due 2014.

The outlook is stable.

The agency said the provisional B2 corporate family rating reflects the company's leading market position in South Africa, 22% EBITDA margin and forecasted significant positive free cash flow generation.

The rating also reflect the company's growth strategy that is partially based on building top-line revenues by providing credit to customers, which expands working capital therefore consuming financial flexibility and liquidity, and its high leverage, although Moody's said this is partially mitigated by the issuer's expectation for rapid deleveraging through strong EBITDA growth driven by the favorable macroeconomic environment.

Based on pro forma credit metrics, the total debt-to-EBITDA ratio is expected to be about 7.2x following the note issuances.

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