VF Downgraded to BBB- Neg. by S&P (expected)

VF's downgrade to BBB- Neg from S&P was ~expected & puts it on par with Moody's mid-Nov move. It holds it from a drop into HY (Moody's still to come/likely first mover). € lines are unch today.

S&P on earnings; Expect FY24 revenue -10% (prev. -6% & vs. c-9%), EBTIDA margin to fall -2% yoy. FY25 flat rev's (in line with consensus) & EBITDA margin improvement.

It recognised company's target leverage (gross of 2.5*) & aim for asset sales to bring down debt adding "VF's financial policies and actions show commitment to investment-grade ratings...[expects co.] will abstain from M&A and share repurchases".

S&P recognises VF's reiteration for targeting the $1.75b repayment in front debt maturities (including repayment of the $750m April '25 line) - adding "This is prudent because refinancing this debt at higher interest rates will pressure cash flow."

S&P net view on leverage to peak at 5* in FY24 before falling to 4* in FY25 on above assumptions. Downgrade kicks in if it doesn't expect leverage to return to 4* within 2yrs.

As a side note it sees the activist campaign from Engaged capital as positive given they are "focused on debt reduction & cost savings, which are in line with improving credit quality". We've already seen VF react with one board appointment (which was mutually agreed with Engaged) & another appointment still to come.

The criteria for downgrade is relatively broad based from S&P. Moody's yet to react & downgrade into HY from it seems more likely - we flagged the €26's as cheap at Z+171 (after its earnings sell-off) - its tightened 10bps since but still screens wide to us. VF reports Q4 results in May.