Fitch Ratings Affirms eBay IDR at ‘A’; Outlook Stable
NEW YORK–(BUSINESS WIRE)– Fitch Ratings has affirmed the following ratings for eBay Inc. (eBay):
–Long-Term Issuer Default Rating (IDR) at ‘A’;
–Senior unsecured debt at ‘A’.
The Rating Outlook is Stable.
The Ratings and Outlook are supported by eBay’s:
–Market-leading payments business (principally PayPal), complemented by the strong traffic and user base of the online commerce segment (eBay Marketplaces);
–Conservative financial policies and credit protection measures;
–Strong financial flexibility and liquidity highlighted by a free cash flow conversion rate in excess of 25% of revenues.
Fitch expects PayPal’s transaction-based operating model will continue to benefit from an increasing share of e-commerce transactions and should be able to offset cyclicality in Marketplaces. Fitch also expects eBay will maintain strong credit metrics and a conservative capital structure with core leverage (net of financing any consumer receivables) at approximately 1.0 times (x) and a disciplined approach to acquisitions.
Concerns center on:
–Expected lower operating margins due to a mix-shift, mostly driven by expected higher growth of the lower-margin PayPal business relative to Marketplaces;
–The company’s ability to achieve consistent growth and differentiation of Marketplaces;
–Event risk of acquisitions;
–An increase in consumer lending services (e.g. via growth of Bill Me Later) including the possibility of debt issuance to support resultant increase in finance receivables which are currently funded via free cash flow.
While relatively small at $511 million, Bill Me Later’s customer receivables portfolio is expected to grow. Fitch believes eBay’s continued expansion of its consumer lending business is a natural extension of the PayPal product offering, although it alters the company’s risk profile with increased exposure to consumer credit.
Fitch expects eBay will continue to expand its geographic revenue base and product offerings through acquisitions, historically financed with cash or stock. eBay recently completed a successful divestiture of a majority of Skype which values Skype at approximately $2.75 billion. eBay will maintain a 30% equity stake and expects to receive $1.9 billion in cash in the fourth quarter of 2009. Fitch believes there is increased potential for significant stock repurchases via excess cash and for acquisitions which may be partially debt-financed, particularly domestic acquisitions since eBay has significant operations and cash balances overseas.
As of Sept. 30, 2009, eBay’s liquidity was strong and supported by more than $3.2 billion of cash and equivalents and short-term investments, a majority of which was located overseas. Fitch expects eBay will have more than $5 billion of cash post the proceeds from the majority sale of Skype. Fitch believes a greater share of eBay’s cash position will be located overseas in the future due to stronger growth in international markets and thus a higher proportion of the company’s cash flow being generated outside the U.S.
Liquidity is further supported by a $1.8 billion revolving line of credit ($200 million outstanding) maturing on Nov. 7, 2012 and latest 12 months (LTM) free cash flow in excess of $2.3 billion. The credit facility agreement requires the company to maintain a consolidated leverage ratio (debt/EBITDA) of less than 3.0x. Fitch anticipates that free cash flow and the higher cash balance via Skype proceeds will be utilized for acquisitions, investments, and stock repurchases. As of Sept. 30, 2009, eBay had authority to repurchase $657 million in shares.
Additional information is available at ‘www.fitchratings.com’.
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