S&P Warns It May Downgrade Amazon

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Unlike Apple, Amazon does not have a quarter trillion in (mostly offshore held) cash. Which means, it will issue debt to fund the Whole Foods purchase. Which means its leverage will rise above 1x. Which means S&P just warned of a downgrade of Amazon’s AA- rating.

From S&P:

Amazon.com Inc. Ratings Placed On CreditWatch Negative On Debt-Financed Acquisition Of Whole Foods

  • Amazon has announced an agreement to purchase Whole Foods Market Inc. in  a debt-financed purchase of about $14 billion.
  • We are placing our ‘AA-‘ corporate credit rating on Amazon on CreditWatch  with negative implications.
  • Our preliminary view is that Amazon’s leverage will approach 1.5x, but  mostly likely remain below 2x. We see the purchase as a major strategic  initiative for Amazon, with execution risk, but also potential significant implications for Amazon’s market strategy as well as for the  broader U.S. grocery market.

 

S&P Global Ratings placed its  ratings, including the ‘AA-‘ corporate credit rating, on Amazon.com Inc. on  CreditWatch with negative implications.

 

“The CreditWatch placement reflects our expectation that Amazon’s leverage  will increase as a result of its plan to purchase Whole Foods for about $14  billion,” said S&P Global Ratings credit analyst Robert Schulz.

 

The rating action also reflects our intent to review implications for Amazon’s  financial policies and retail market strategy. 

 

We believe the company will maintain leverage above the target of less than  1x, currently incorporated into the rating. Our assessment of the impact of  this transaction on Amazon’s competitive positioning and profitability will  also be part of our review. 

 

While the transaction would result in leverage consistent with our current  target for a downgrade of adjusted leverage approaching 1.5x, we would also review Amazon’s prospective strategic and financial policies as part of any  downgrade. We would expect to conclude our review once more details such as  the timing of any required shareholder and regularly approvals become clear  along with our understanding of the policies noted above.

Below is an artist’s impression of Amazon’s reaction:

  • *AMAZON TO BUY S&P

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