OREANDA-NEWS. Fitch Ratings considers the acquisition of 51% of Grupo Prisa (Prisa), a leading Chilean office supplies company, by Office Depot de Mexico (ODM) to be positive for its business profile, but neutral for credit quality. The Grupo Prisa acquisition increases geographic diversification and brings additional cash flow generation that offsets the increase in leverage due to the depreciation in the Mexican peso (MXN) vs. the U.S. dollar (USD), which affects ODM's unhedged, USD-denominated debt.

On Feb. 19, 2015, ODM announced its acquisition of 51% of Proveedores Integrales Prisa S.A., Surti Ventas S.A., Prisa Logistica S.A., Proveedores Integrales del Sur S.A., Distribuidora Prisa Store S.A., and Proveedores Integrales del Norte, S.A., which together make up Grupo Prisa, the largest office supplies wholesale distributor in Chile. The transaction is expected to close before the end of the second quarter of 2015 (2Q'15), pending due diligence and authorizations. Fitch expects the payment for Prisa to be in cash and not to increase the company's indebtedness.

Fitch believes that the consolidation of Prisa will bring modest additional EBITDA and cash generation to ODM which will not materially change its consolidated credit profile. As the acquisition is to be carried out without debt, this would also have a moderate improvement in leverage, which is counteracted by MXN depreciation against the USD of about 9% in 4Q'14. Regardless, interest coverage metrics will not be affected, as ODM has currency hedges for coupon payments up to September 2017, when the notes become callable.

Fitch expectation is that ODM's debt-to-EBITDA leverage should be around 2.5x (adjusted debt-to-EBITDAR: 3.5x) in the medium term. On a pro forma basis, incorporating both this acquisition and the previous Marchand acquisition, and excluding FX effects on debt levels, debt-to-EBITDA should be about 2.6x. While Fitch envisions short-term deviations from these expected leverage levels due to strategic initiatives, sustained leverage levels above expectations will put pressure on the ratings.