Research Update: PetSmart Inc. Corporate Credit Rating Lowered To 'CCC' From 'CCC+' On Potential Debt Restructuring; Outlook Negative

We believe that operating performance at U.S.-based pet food retailer PetSmart Inc.will not recover sufficiently to support its burdensome capital structure of about $8 billion of funded debt, of which about $2 billion of which was used to finance the purchase of online pet food retailer Chewy. We now see heightened risks of a distressed exchange transaction over the next year after PetSmart's transfer of a portion of its ownership in Chewy to parent Argos Holdings along with the hiring of financial advisors. As a result, we are lowering our corporate credit rating on PetSmart to 'CCC' from 'CCC+'. The negative outlook reflects our view that a downgrade would occur if PetSmart reduces its debt in transactions that we consider

...+ We believe that operating performance at U.S.-based pet food retailer PetSmart Inc.will not recover sufficiently to support its burdensome capital structure of about $8 billion of funded debt, of which about $2 billion of which was used to finance the purchase of online pet food retailer Chewy. + We now see heightened risks of a distressed exchange transaction over the next year after PetSmart's transfer of a portion of its ownership in Chewy to parent Argos Holdings along with the hiring of financial advisors. + As a result, we are lowering our corporate credit rating on PetSmart to '###' from '###+'. + The negative outlook reflects our view that a downgrade would occur if PetSmart reduces its debt in transactions that we consider a distressed exchange....

Research Update