EU CONSUMER CYCLICALS: VF Corp: Moody's downgrade (x2)
(VFC: Ba3 Neg/BB)
No change to the family rating at Ba2 but given VF changed its unsecured $2.25b revolver to a now secured $1.5b revolver, Moody's has downgraded the remaining debt/bonds (all unsecured) to Ba3. We flagged the revolver change back in May when it slid it under a SEC filing - but it has talked about it since. Remains undrawn.
- Moody's sees partial draw of the revolver to pay off the front €500m Mar-26
- Co previously said it will use it alongside cash but at last results (30 July) revised expectation more conservatively to refi will "be mostly from free cash flow"
- Moody's sees FCF of $300m, co is guiding to more than last year (>$313m)
- Outlook remains on negative;
- Moody had FY24 leverage at 5.1x and expects it to end this year at 4.5x. Co is guiding to level below last years 4.1x (adjustments in EBITDA will be lower this year closing gap to Moody's leverage). Rating threshold is 4.0x.
- Moody's expects ICR to rise from 2.1x to 2.5x this year. Rating threshold is 2.5x.
Re. the vans turnaround, equities are not as optimistic as they once were but are off lows and have been rallying; at 20x they are pricing y/y earnings growth here. Reminder largest brand North Face is seasonally stronger into the coming Northern Hemisphere winter quarters - it saw +5% growth in 3m to June. The new management team again issued lacklustre 2Q guidance (unch EBIT y/y on LSD revenue fall, unch gross margin but SG&A up) - but has a history of beats.
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MNI: ITALY JULY FINAL HICP 1.7% Y/Y
- MNI: ITALY JULY FINAL HICP 1.7% Y/Y
- ITALY JULY FINAL HICP -1.0% M/M
BONDS: Rally Extends
As noted in our gilt comment, a pullback from session highs in wider global equity index futures is helping underpin the early rally in bonds at this stage, although TY, Bund & gilt futures remain within the ranges in play over the past couple of sessions.
- Other supportive factors include:
- Some focus on the potential deflationary impact surrounding this week’s Trump-Putin meeting in Alaska. However, Ukrainian President Zelenskiy has pushed back against the idea of land concessions in any peace deal with Russia, seemingly leaving the two sides very much at odds when it comes to pre-requisites surrounding any ceasefire agreement.
- A favourable cash flow backdrop for EGBs on the week (issuance pares back, while notable redemptions and coupon payments are noted, see earlier bullets and our weekly EGB issuance document for greater details).
- Another particularly soft UK KPMG-REC report on jobs ahead of tomorrow’s official labour market report from the ONS.
- Core global bond curves bull flatten, EGB spreads to Bunds little changed.
GILTS: Bull Flattening As Bonds Rally & REC Jobs Report Remains Soft
Gilts rally alongside global peers, with equity indices away from highs and some focus on the potential deflationary impact surrounding this week’s Trump-Putin meeting in Alaska.
- A reminder that Ukrainian President Zelenskiy has pushed back against the idea of land concessions in any peace deal with Russia, seemingly leaving the two sides very much at odds when it comes to pre-requisites surrounding any ceasefire agreement.
- Gilts also benefit from the latest KPMG-REC report on jobs, which pointed to an ongoing slowing of the UK labour market, with wage growth seemingly restrained as businesses react to tax hikes.
- Futures rally to 92.37. Initial resistance of note located at the August 5 high (92.84). Bulls look to regain momentum after a close below the 20-day EMA/
- Yields 4-5bp lower, curve biased a little flatter.
- 2s and 10s move back into the lower half of the ranges witnessed since early June, 2s last 3.86%, 10s last 4.55%.
- 2s10s and 5s30s continue to trade around 70bp & 140bp, respectively.
- Dovish extension in GBP STIRs given the rally in the long end. SONIA futures showing flat to +4.0, BoE-dated OIS pricing 18bp of easing through year-end and 28bp through February (vs. 17bp & 27bp ahead of the gilt open).
- Little of note on the UK calendar today, with tomorrow’s labour market report headlining the weekly schedule (expect our full preview of that release later today).
