Fitch Rates Target Corp.'s Notes `A'; Outlook Stable

Business Wire, Jan 9, 2001

Business Editors

CHICAGO--(BUSINESS WIRE)--Jan. 9, 2001

Fitch has assigned a rating of `A' to Target Corporation's (TGT) $700 million issue of 6.35 percent notes due Jan. 15, 2011. The proceeds will be used for general corporate purposes. At the same time, Fitch has affirmed its rating of TGT's existing $5.0 billion of senior notes and $1.6 billion bank facility at `A' and its commercial paper program at `F1'. The Rating Outlook is Stable.

TGT's operations have strengthened over the past few years, supported by brisk growth at its Target Division offsetting more modest gains at Mervyn's and recent weakness at the Department Store Division. The Target Division's share of consolidated operating profits has grown from 59% in 1993 to 83% in the nine months ended Oct. 28, 2000. This increase has been driven by new unit expansion and strong comparable store sales growth as the Target Division has successfully differentiated itself as the upscale discounter.

TGT's credit profile remains solid. EBITDAR/interest plus rents improved to 5.8 times (x) in the 12 months ended Oct. 28, 2000 from 5.5x in the year-earlier period. Leverage, as measured by adjusted debt to EBITDAR, increased modestly over the same period from 2.0x to 2.4x due to higher levels of capital spending for expansion and continued share repurchases. TGT's credit measures could weaken slightly in 2001 given the softer retail environment, increased capital spending related to an accelerated roll-out of the SuperTarget format, and ongoing share repurchases. Nevertheless, the credit measures are expected to remain commensurate with the rating category. TGT is well positioned in the face of a weaker economy as consumers could be expected to trade down to the discount channel for certain purchases.

Going forward, Fitch anticipates year-end leverage will remain at or near 2x, as operating cash flow finances the bulk of TGT's substantial capital requirements and the company maintains a discretionary approach to its share repurchase program. In addition, TGT retains considerable financial flexibility, including a sizable level of receivables, which could be securitized.