Moody’s assigns Ba3 to Pepco, notes

Moody’s Investors Service said it assigned a Ba3 corporate family rating to Pepco Group NV and a Ba3 rating to its planned €300 million of backed senior secured notes due 2028 to be issued by its subsidiary PEU (FIN) plc. The outlook is stable.

Pepco also upsized its revolver to €390 million. The notes will rank equally with Pepco’s revolver and €250 million term loan due 2026.

Moody’s noted Pepco’s growing geographic diversification across Europe, its leading position in Central and Easter Europe and the United Kingdom, the company’s adjusted gross leverage of 2.5x as of March 31 with a forecasted improvement over the next three years, according to Sebastien Cieniewski, a Moody's vice president, senior credit officer and lead analyst for the Pepco group, in a press release.

Counterbalancing these benefits, the agency said it considered the execution risks related to the company's accelerated store opening strategy in Western Europe, outside of the U.K., where the company will face major established competitors, the lack of any meaningful free cash flow projected over the period from the fiscal year ending Sept. 30 (FY) 2023 to FY 2025 with most of the cash flow from operations after lease repayments to be reinvested in expanding the store network and existing stores refits.

Moody’s said it expects Pepco to widen its margins and shave its leverage towards 2x over the next three years.

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