OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to eBay, Inc.'s (eBay) 2-year and 6-year senior notes offering. Fitch's actions affect $9.5 billion of total debt including the $750 million of 6% 40-year senior notes issued Feb. 23, 2016 and the $2 billion undrawn revolving credit facility (RCF). The Rating Outlook is Stable. A full list of current ratings follows at the end of this release.

eBay will issue the senior notes under the indenture dated Oct. 28, 2010. The senior notes rank pari passu with eBay's existing senior unsecured debt. Fitch expects eBay will use net proceeds from the issuance for general corporate purposes, including share repurchases and acquisitions.

KEY RATING DRIVERS

The ratings and Outlook reflect Fitch's expectations for solid operating performance, despite a challenging operating environment. Fitch expects low single digit foreign exchange (FX) neutral revenue growth over the intermediate term, driven by increasing gross merchandise value (GMV) and mid- to high-single digit growth in international markets. FX translation should remain a significant headwind over at least the near-term. Fitch anticipates investments in cataloging unstructured data to improve search results and incentivizing the return of lapsed users following the 2014 password reset will drive longer-term demand.

Fitch expects profitability will remain solid with operating EBITDA margin between 38% and 40%. The benefits of restructuring should offset stand-up costs related to eBay's separation from Paypal Holding Inc. (Paypal) at the end of 2015. As a consequence, Fitch expects credit protection measures to remain solid with total leverage (total debt to operating EBITDA), pro forma for the issuance, in the 2.5x - 3x range. Cash location could drive continued borrowing over the longer-term, although Fitch expects total leverage will remain below 3x.

Fitch expects the continuation of robust annual FCF of more than $2 billion. Fitch expects eBay will use FCF for share repurchases and, to a lesser extent, acquisitions through the intermediate term Fitch expects intensified share repurchases in line with eBay's commitment to buying back up to $6 billion of stock through 2017. Fitch expects eBay will limited share repurchases to offset dilution beyond the intermediate term, given significant cash balances outside of the U.S.

The ratings and Outlook are supported by:

--Fitch's expectations for significantly higher profitability versus retail industry peers and low capital intensity resulting in strong and consistent FCF;
--Solid financial flexibility supported by $8.5 billion of cash of which $1.5 billion is located within the U.S. and more than $2 billion of annual FCF;
--eBay's leading e-commerce platform, especially for specialized product offerings, with strong brand recognition and technology capabilities;
--Large active accounts base and focus on serving small- to medium-sized sellers provides significant customer diversification.

Ratings concerns center on:

--Fitch's expectations for revenue growth challenges from increased competition, as well as periodic changes to Google's search engine algorithm;
--Fitch's expectations for more aggressive financial policies over the longer-term, given reduced strategic rationale for strong investment grade ratings following the separation of Paypal and likely exacerbated by significant offshore cash and FCF;
--Fitch's expectations for ongoing challenges gaining e-commerce platform traction in faster growing developing markets with rapid mobile adoption.

KEY ASSUMPTIONS

--Low single digit FX neutral revenue growth through the intermediate term;
--Consistent profitability with operating EBITDA margin of 38% to 40%;
--Capital spending remains elevated to accelerate growth opportunities, including investments in structured, catalogued merchandise;
--Incremental debt issuance to support share repurchases and acquisitions, given cash location.

RATING SENSITIVITIES

Positive rating actions could occur if:

--Management commits to curtailing share repurchases and managing debt to maintain total leverage closer to 2x; or
--Sustained low- to mid-single digit FX neutral organic revenue growth, supporting eBay's mobile strategy and resulting in higher and more predictable FCF.

Negative rating actions could occur if:

--Operational weakness or more aggressive financial policies will result in total leverage sustained above 3x; or
--Sustained negative FX neutral revenue growth, indicating an uncompetitive mobile strategy.

LIQUIDITY

Fitch believes eBay's liquidity was strong at Dec. 31, 2015, pro forma for the Feb. 23, 2016 issuance, and supported by:
--$9.25 billion of cash and equivalents, of which $2.25 billion was in the U.S.;
--$2 billion undrawn RCF expiring November 2020.

Fitch's expectations for more than $2 billion of annual FCF also supports liquidity.

Total debt as of Dec. 31, 2015, pro forma for the Feb. 23, 2016 issuance, was $7.5 billion and consisted of:

--$1 billion 1.35% notes due July 2017;
--$450 million floating rate notes due July 2017;
--$400 million floating rate notes due January 2019;
--$1.15 billion 2.2% notes due August 2019;
--$500 million 3.25% notes due October 2020;
--$750 million 2.875% notes due August 2021;
--$1 billion 2.6% notes due July 2022;
--$750 million 3.45% notes due August 2024;
--$750 million of 4% notes due July 2042;
--$750 million of senior notes due 2056.

FULL LIST OF RATING ACTIONS

Fitch has rated the senior notes offering 'BBB'.

Fitch currently rates eBay as follows:

--Long-term issuer default rating (IDR) 'BBB';
--Senior unsecured revolving credit facility 'BBB';
--Senior unsecured notes 'BBB';
--Short-term IDR and commercial paper 'F2'.

Fitch has assigned a 'BBB' rating to the 40-year senior notes.