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S&P affirms V.F. Corp. ratings amid its plan to spin off jeanswear segment

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S&P affirms V.F. Corp. ratings amid its plan to spin off jeanswear segment

S&P Global Ratings Aug. 13 affirmed its A issuer credit rating on the apparel and footwear maker V.F. Corp. with a stable outlook following the company's plan to spin off jeanswear segment.

The rating agency affirmed A issue-level ratings on all tranches of the company's senior unsecured notes and senior unsecured global revolving credit facilities, while it affirmed A-1 short-term rating.

The North Carolina-based company that owns brands such as Vans, The North Face and Timberland, on Aug. 13 announced its plan to split into two independent publicly traded companies by creating a new company for its jeans brands and outlet business.

The ratings affirmation reflects S&P's expectation that the planned tax-free spinoff will allow V.F. to focus on its remaining core businesses and position the company for strong and profitable growth while continuing its portfolio rationalization strategy.

V.F. is expected to maintain its "historically conservative" financial policy and remain committed to debt reduction after the spinoff, S&P said in a release, adding that the apparel maker will retain its solid positions in the outdoor, active, and work lifestyle segments.

Following the spinoff, fiscal 2020 revenues are expected to decline in high-teens percentage area. Adjusted EBITDA margin is projected to decline modestly to 18% in fiscal 2019, from about 19% currently because of acquisition-related costs and continued investments in digital initiatives. S&P also expects the company's debt to EBITDA to improve toward 1.5x at the end of 2019 from the current level of 2x, and remain in the 1.5x-2.0x range in 2020.

S&P forecasts capital expenditures of about $300 million and cash dividends of over $700 million in fiscal 2019. The rating agency also noted that it expects the company to de-emphasize share repurchases to improve debt leverage. No share buybacks are expected in 2019, while the agency projects modest share repurchases thereafter.

S&P based its stable outlook on the expectation that V.F. will prioritize debt reduction after the spinoff and manage its leverage in the 1.5x-2.0x range.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.