Fitch Ratings lowers its default rating on Starbucks (NASDAQ:SBUX) to BBB from BBB+ and assigns a ratings outlook of Negative vs. a prior outlook of Stable.
Fitch expects Starbucks’ revenue to decline around 14% in FY20 and EBITDA to drop about 60% amid a consumer downturn.
“The downgrade is the result of Starbucks’ higher leverage profile following the proposed issuance of $3 billion. The new debt is projected to increase Starbucks’ adjusted debt/EBITDAR by around a half a turn on an ongoing basis, though Fitch recognizes the company could use a portion of the proceeds to fund the maturities of $1.25 billion of debt that comes due in the company’s fiscal 2021, mitigating the leveraging impact.”
“The Negative Outlook reflects the significant business interruption from the coronavirus pandemic and the implications of a downturn in discretionary spending that Fitch expects could extend well into 2021. Fitch anticipates a sharp increase in adjusted leverage to around 7.0x in fiscal 2020 (ending September 2020) from 3.2x in fiscal 2019 based on EBITDA declining to approximately $2.3 billion from $5.8 billion in fiscal 2019 on an approximately 14% sales decline to $22.9 billion.”
Jeff, Guest blog