Moody's on Dec. 12 downgraded Lowe's Cos. Inc.'s senior unsecured ratings to Baa1 from A3 and affirmed the company's Prime-2 short-term debt rating.
The outlook is stable.
The agency said it lowered the home improvement chain's ratings after it announced plans to substantially increase shareholder returns and raise its targeted leverage ratio to 2.75x from 2.25x amid operational challenges.
Lowe's CFO David Denton told analysts and investors on Dec. 12 that the company will set a $25 billion shareholder return target from 2019 through 2021 and fund a portion of this initiative using additional debt. The company then announced a $10 billion share buyback plan with no expiration date.
"Lowes has adopted a more aggressive financial policy that will result in significantly higher debt levels and weaker credit metrics and reduces the company's financial flexibility," Bill Fahy, Moody's senior credit officer, said in a statement.
However, Moody's said it expects Lowe's earnings, cash flows and liquidity to remain stable as it believes the retailer will execute strategic initiatives to address operational challenges.
The agency said it could upgrade Lowe's ratings if its debt-to-EBITDA ratio drops below 2.5x and if it adopts a more moderate financial policy.