DBRS Confirms Nordstrom, Inc. at A (low), R-1 (low), Stable Trends, Following Sale of Credit Card Portfolio

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of Nordstrom, Inc. (Nordstrom or the Company) at A (low), and its Short-Term Rating at R-1 (low), all with Stable trends. These rating actions follow Nordstrom’s announcement yesterday of the closing of its credit card transaction with TD Bank U.S.A., N.A. (TD), including the sale of its credit card portfolio and the initiation of the long-term agreement under which TD is the exclusive U.S. issuer of Nordstrom-branded Visa and private label consumer credit cards.

On May 26, 2015, following Nordstrom’s announcement of entering into an agreement with TD for the sale of its credit card receivables, DBRS had stated that any transaction in a form that allows Nordstrom to retain the strategic benefits of its credit card portfolio, including any associated increase in financial leverage (as adjusted for retail operations), would likely result in the overall credit risk profile remaining within the parameters of the current rating category.

Nordstrom confirmed today that it will continue to perform all customer-facing account servicing functions, maintaining the customer-focused integration between its credit and retail operations. The Company will also continue to fund and manage the Nordstrom Rewards loyalty program, Nordstrom debit cards and Nordstrom employee accounts. This transaction is designed to have virtually no service impact on Nordstrom cardholders, customers and employees.

Nordstrom sold its credit card portfolio to TD for $2.2 billion, representing the gross value of the outstanding receivables. In conjunction with the transaction, the Company prepaid $325 million of secured debt due October 2016 to provide the receivables free and clear.

Nordstrom has stated that it intends to deploy net proceeds of $1.8 billion, after debt reduction and transaction costs, directly to shareholders through dividends and share repurchases. In connection with the closing, Nordstrom’s board of directors authorized a special cash dividend and an additional share repurchase program of up to $1 billion of the Company’s common stock, through March 1, 2017. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and the applicable Securities and Exchange Commission rules. This program is in addition to the Company’s existing repurchase program that was approved by its board in September 2014. The existing repurchase program has $591 million outstanding as of September 30, 2015, and will expire on March 1, 2016.

DBRS forecasts that the use of remaining transaction proceeds for shareholder returns would result in an increase in financial leverage (lease-adjusted debt-to-EBITDAR as adjusted for retail operations only) to approximately 1.8 times (x) to 1.9x on a pro forma basis from approximately 1.4x at the end of FY2014. This increase in financial leverage moderately weakens Nordstrom’s overall credit risk profile within the bounds of the current rating category.

DBRS ratings continue to be based on Nordstrom’s strong reputation for customer service and merchandising, its number one position in the U.S. luxury department store segment and an increasingly diverse customer base. The ratings also continue to reflect intense competition, exposure to economic cycles and changing consumer trends, as well as execution risks associated with an accelerated program of new store openings in the United States and Canada.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The ratings are endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Merchandising Industry, which can be found on our website under Methodologies.