OREANDA-NEWS. Fitch Ratings has affirmed S. A.C. I. Falabella's (Falabella) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+'. Fitch has also affirmed Falabella's National Scale rating at 'AA(cl)'/'N1+(cl)' and affirmed the National Scale equity rating at First Class Level 1. The Rating Outlook is Stable.

KEY RATING DRIVERS

Diversified Business Model:

Falabella's ratings reflect the company's dominant business position as a leading regional retailer with store formats that include department stores, home improvement stores, real estate and food retailing businesses. The company also operates an integrated financial business that comprises a proprietary credit card business (Promotora CMR Falabella S. A. [CMR]) and retail banking operations in Chile, Peru, and Colombia. Falabella's strong positioning of its retail formats and brands combined with the solid asset quality of its private credit card allows the company to create operational, commercial and financial synergies which have resulted in stable operating results during the last several years. The company's business model also offers some degree of geographic diversification, as approximately 28% of its EBITDA comes from international operations (21% from Peru).

Stable Operating Performance:

Falabella has demonstrated stable operating results throughout weak economic periods, with strong 13%-14% EBITDA margins and stable cash flow from operations (CFFO) generation. Fitch expects single-digit revenue growth in 2016 and stable EBITDA margin due to a subdued consumer environment notably in Peru, Colombia, and Brazil. Free cash flow (FCF) margins are expected to remain negative in the low single digits, which is consistent with the company's growth strategy. The company expects to spend about USD4 billion on capital expenditures during 2016-2019 for organic growth, remodelling of existing stores, logistics and IT.

Stable Credit Metrics:

We expect Falabella's credit metrics to remain relatively unchanged in 2016. Fitch projects corporate adjusted gross leverage - excluding liabilities related to the banking business - to remain stable at about 3.7x (3.8x in FYE15), and retail-only adjusted leverage to also remain steady at about 3x. The company's total gross adjusted financial leverage, measured by the total adjusted debt/ EBITDAR, was 5.6x as of the latest 12 months (LTM) ended March 31, 2016. This ratio calculation considers debt related to the banking operations.

Portfolio Credit Quality Remains Stable:

CMR has shown good profitability and performance throughout the cycle due to its solid margins and good credit risk management. CMR manages a loan portfolio of about USD2.1 billion. Past due loans of more than 90 days represented 2.2% of gross loans as of March 31, 2016 (2.2% in 2015), while debt restructuring represented only 4.4%. CMR's loan loss reserves represented 3.75% of total gross loans as of March 2016 and provide ample coverage for total expected losses; these levels are considered adequate.

Equity Rating:

Falabella's equity rating considers its long and consolidated track record in the Chilean stock exchange, and the company's strong credit profile and conservative risk management of its businesses. While the float on the company's stock is at the lower end of the range for the Level 1 category, the company's relevant size and financial strength compare well with other Level 1 rated peers, particularly several banks. The float on the company's stock increased by 2.17% to about 22.5% in June 2016, following the sale of shares by one controlling shareholder.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Falabella include:

--EBITDA margin remains in the 13%-14% range;

--Annual free cash flow (FCF) margin remains negative in the low single digits;

--Capex of USD4 billion up to 2019;

--Corporate-only gross adjusted leverage - excluding banking operations - below 4x.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Significant deterioration in the credit quality of the company's credit card and banking businesses;

--Corporate-only gross adjusted leverage - excluding banking operations - remains consistently above 4.0x;

--Retail-only gross adjusted leverage - excluding CMR, banking operation and real estate - consistently above 3x-3.5x.

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Positive FCF generation after interest and dividends;

--Corporate-only gross adjusted leverage - excluding banking operations - remains consistently below 3x.

--Retail-only gross adjusted leverage - excluding CMR, banking operation and real estate - consistently below 2x.

LIQUIDITY

Liquidity is adequate due to the company's good access to the capital market and its internal cash generation consisting of USD1 billion of CFFO during the LTM ended March 31, 2016. Cash and equivalents of USD916 million and the short-term receivables portfolio of its CMR business of about USD2.1 billion further bolster the company's liquidity; short-term credit card receivables are highly liquid and are financed with short-term debt. The company faces debt maturities of USD903 million in 2017 and USD548 million in 2018 which comprise mainly bank debt and commercial paper notes. Refinancing risk is low due to the company's financial flexibility resulting from its CFFO generation, credit card portfolio and ample capital market access.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following:

S. A.C. I. Falabella

--Local Currency Issuer Default Rating (IDR) at 'BBB+' ;

--Foreign Currency IDR at 'BBB+';

--USD400 million unsecured bonds due in 2025 at 'BBB+';

--USD500 million unsecured bonds first tranche due in 2023 at 'BBB+';

--CLP94,500 million unsecured bonds second tranche due in 2023 at 'BBB+';

--Long-Term National Scale rating at 'AA (cl)';

--Bonds No. 395, series K and L at 'AA(cl)';

--Bonds No. 468, series F at 'AA(cl)';

--Bonds No. 578, series O and N at 'AA(cl)';

--Bonds No. 579, series J at 'AA(cl)';

--Bonds No. 467, series M at 'AA(cl)';

--Bonds No. 578, series P at 'AA(cl)';

--Bonds No. 578 at 'AA(cl)';

--Bonds No. 395 at 'AA(cl)';

--Bonds No. 467 at 'AA(cl)';

--Bonds No. 468 at 'AA(cl)';

--Bonds No. 579 at 'AA(cl)';

--Commercial paper instruments No. 028 at 'AA(cl)'/'N1+(cl)';

--Commercial paper instruments No. 035 at 'AA(cl)'/'N1+(cl)';

--Commercial paper instruments No. 036 at 'AA(cl)'/'N1+(cl)';

--Commercial paper instruments No. 037 at 'AA(cl)'/'N1+(cl)';

--Commercial paper instruments No. 038 at 'AA(cl)'/'N1+(cl)';

--National equity rating at Level 1 (cl) (Primera Clase Nivel 1).