Moody’s lifts HD Supply, debt; rates notes B3

Moody's Investors Service said it upgraded HD Supply, Inc.'s corporate family rating to B1 from B2, probability of default rating to B1-PD from B2-PD, senior secured debt to Ba3 from B1 and unsecured notes to B3 from Caa1.

The agency also assigned a B3 to the company's proposed $1 billion senior unsecured notes due 2024, which will have substantially the same terms and conditions as the existing $1.275 billion senior unsecured notes due 2020, and rank pari passu to each other in a recovery scenario.

Moody's raised the speculative grade liquidity rating to SGL-1 from SGL-2 as well.

The outlook is positive.

Proceeds from the note issuance and about $124 million of cash on hand will be used to refinance the company's existing $1 billion senior unsecured notes due 2020 (at which time the ratings for these notes will be withdrawn), and to pay related fees, expenses and make-whole premium.

Moody’s said the upgrade of HDS' corporate family rating to B1 from B2 reflects its expectations that operating profits and cash flow generation will continue to grow organically, driven mainly by higher volumes across its businesses, and credit metrics will continue to improve.

Over the next 12 to 18 months, the agency projects HDS' operating margins nearing 11% from 10.4% for FY15 ended Jan. 31, 2016. Moody's expects interest coverage (measured as EBITA-to-interest expense) approaching 2.5 times compared to 1.8 times for FY15 and debt leverage improving to at least 4.5 times over the next 12 to 18 months from 4.7 times at FYE15.

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