TEXT-S&PBulletin: Woolworths Ltd. Rtgs Unaffected By Property Sale

(The following was released by the rating agency)

SYDNEY (Standard & Poor's) Oct. 5, 2012--Standard & Poor's Ratings Services said today that its ratings and outlook on Woolworths Ltd. (A-/Stable/A-2) remain unchanged following the company's proposal to sell A$1.4 billion of property assets to a real estate investment trust (REIT), Shopping Centres Australasia Property Group (SCA Property Group), that Woolworths will establish.

The SCA Property Group will be created via a distribution of trust units to Woolworths investors based on the number of shares they own. The trust will also seek to raise additional equity and debt to fund the portfolio acquisition. The transaction will result in Woolworths incurring additional operating lease payments (which we treat as debt) for occupying the properties sold to the REIT. However, we anticipate the transaction will have a minimal impact on Woolworths' financial metrics as the cash proceeds from the sale will be used to repay Woolworths' on-balance-sheet debt.

Nonetheless, we expect Woolworths' financial risk profile to remain at the weaker end of our expectations for the rating in year ending June 30, 2013. Accordingly, the ratings and outlook anticipate that Woolworths will actively manage its capital base to maintain a financial profile in line with the 'A-' rating. In this regard, we expect that the company will manage its fully adjusted funds from operations (FFO) to debt at about 25% or more and fixed-charge coverage at the upper end of the 2.5x-3x range.