Consumer Credit; Week in Review

Consumer names moved in line with €IG over the week (-3/4bps tighter) with some outperformance from retailers (-5) vs. F&B names (-2). Notable movers/news;

Avis (B1, BB-; S); €26 +20bps/-28c; 30's +30bps/-120c, Equities -28%

Large miss on 4Q operating metrics (Monday), de-fleeting to bring up utilisation but with a backdrop of falling used car prices (US Jan CPI) & guidance to climbing depreciation/unit costs. Moody's could downgrade on just operating metrics (despite little change on BS/liquidity) & noting FY24 adj. EBITDA forecasts have been cut from ~$1.65b to $1.4b by analyst - will pressure Moody's ceiling for leverage (debt/EBTIDA) of max 4* here (sustained increases above for downgrade). The Avis lines don't screen as cheap to us.

VF (Baa3 Neg, BBB- Neg) €26 to 32's end 20-30bps tighter, Equities +9%

VF has screened cheap to us since its post-Q3 earnings sell-off last week (Wednesday) & ends the week as one of the best performing consumer curves. Rumoured founding family support for board changes gave equities some support on Monday but main event was S&P coming with a one-notch downgrade (still neg. outlook) yesterday - was expected and somewhat reassuring its allowing a temporary increase in leverage to 5* & giving it 2yrs to bring it back to 4*. Still criteria for downgrade is left broad based and references operating metrics & it will still require VF to pay down $1.75b in front maturities (to '25). 26's still screen cheap to us but we note for investors uncertainty in months ahead with how company navigates asset sales & headline performance

Coty (Secured; Ba2 Pos, BB+ Pos, BB+ Pos)- € lines unch to 10bps tighter, Equities +2.5%

We flagged Coty as a potential rising star heading into earnings 2 weeks ago and it delivered with strong deleveraging in BS, slight 2Q beat & unch guidance. We don't see much value in the Euro curve here - its moved over 10bps tighter & prices more in line with crossover rating. Uncertainty still remains on the path to IG - not only from headline performance/FCF generation (c$480m/+20%yoy, Moody's $400m in FY24) but also the timing of asset sales (like the Wella stake/~$1.1b which company expects to sell by CY25) - both will be required to bring leverage into IG/company targets. Moody's came with a one-notch upgrade to the LT family rating (Ba2 to Ba1) & Senior Unsecured debt (from B2 to B1) yesterday - it left the majority of Coty's $ & € Senior secured debt at Ba2 Positive given "reduction in loss absorption cushion provided by unsecured notes as their proportion in cap. structurer gets smaller". For those that still want exposure, we see the $ curve as more attractive (spreads swap over more attractive, trades wider to IG names & cheaper cash prices).