S&P Warns It May Downgrade Amazon

Tyler Durden's picture

Unlike Apple, Amazon does not have a quarter trillion in (mostly offshore held) cash. Which means, it will issue debt to fund the Whole Foods purchase. Which means its leverage will rise above 1x. Which means S&P just warned of a downgrade of Amazon's AA- rating.

From S&P:

Amazon.com Inc. Ratings Placed On CreditWatch Negative On Debt-Financed Acquisition Of Whole Foods

  • Amazon has announced an agreement to purchase Whole Foods Market Inc. in  a debt-financed purchase of about $14 billion.
  • We are placing our 'AA-' corporate credit rating on Amazon on CreditWatch  with negative implications.
  • Our preliminary view is that Amazon's leverage will approach 1.5x, but  mostly likely remain below 2x. We see the purchase as a major strategic  initiative for Amazon, with execution risk, but also potential significant implications for Amazon's market strategy as well as for the  broader U.S. grocery market.

 

S&P Global Ratings placed its  ratings, including the 'AA-' corporate credit rating, on Amazon.com Inc. on  CreditWatch with negative implications.

 

"The CreditWatch placement reflects our expectation that Amazon's leverage  will increase as a result of its plan to purchase Whole Foods for about $14  billion," said S&P Global Ratings credit analyst Robert Schulz.

 

The rating action also reflects our intent to review implications for Amazon's  financial policies and retail market strategy. 

 

We believe the company will maintain leverage above the target of less than  1x, currently incorporated into the rating. Our assessment of the impact of  this transaction on Amazon's competitive positioning and profitability will  also be part of our review. 

 

While the transaction would result in leverage consistent with our current  target for a downgrade of adjusted leverage approaching 1.5x, we would also review Amazon's prospective strategic and financial policies as part of any  downgrade. We would expect to conclude our review once more details such as  the timing of any required shareholder and regularly approvals become clear  along with our understanding of the policies noted above.

Below is an artist's impression of Amazon's reaction:

  • *AMAZON TO BUY S&P

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SloMoe's picture

Yes, we have no organic bananas...

Mtnrunnr's picture

I mean if they just dilute they can raise all the cash they'll ever need

Handful of Dust's picture

At $5 per organic carrot, what can go wrong?

eclectic syncretist's picture

Yeah. And you can piss on the Bezo's Post on your way out the door.

Unless they dump all the food and just use the buildings as delivery warehouses.

fx's picture

I wonder why they opted for an all-cash deal. A handful of amzn stock at these prices would have done the trick. Do they really believe their own equity to be undervalued compared to Whole Food's?

As for the WaPo even pissing on it would give too much attention to these assholes over there.

Tijuana Donkey Show's picture

No board fights with cash buddy. It's the best bribe to get rid of management.

Richard Chesler's picture

From the same fuckers that rated Bear Stearns as AAA right before it went tits up.

AllOfGood's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

813kml's picture

Free returns on cucumbers if they are not the desired girth.

VD's picture

AMZN = PNZI = PONZI

 

lost money on core biz every quarter for over 80 quarters = scamola on back of corp whoring, zirp more at nirp and QE.

 

fukoffffff

Shitonya Serfs's picture

Repeated from my other post:

Amazon, the everything store. Amazon, the government store.

Enjoy comrades.

FoggyWorld's picture

More and more the Chinese government store.

spastic_colon's picture

other than that there were no reasons to downgrade long before now lol

Countrybunkererd's picture

Bad news?  BUY BUY BUY.  Break it up into 1000 pieces... oh it is a CIANSA, Inc.

Blankenstein's picture

Also

Buyer beware.  Amazon commingles inventory, so third party knockoffs get mixed in with legitimate product.  

 

"Commingling on Amazon has gotten a considerable amount of flak from both sellers and consumers. Some businesses have noted that fake products can get mixed in with the bunch, which leads to negative brand perception, negative reviews, and potentially even unwarranted product returns."

"“It is [fraud] also a result of the way Amazon manages inventory in its network of warehouses across the U.S. As more third-party sellers have signed up to offer products through Amazon and use its order-fulfillment services…in essence commingling products from third-party merchants with those supplied directly to Amazon by the brands themselves.”- WSJ "

 

http://www.cpcstrategy.com/blog/2015/08/brand-protection-amazon/

 

 

 

Blankenstein's picture

More:

Amazon's Chinese counterfeit problem is getting worse.

"Amazon is making money hand over fist from counterfeiters, and they've done about as little as possible for as long as possible to address the issue," said Chris Johnson, an attorney at Johnson & Pham LLP, which focuses on intellectual property and brand enforcement ... "Word is out in the counterfeit community that it's open season on Amazon."

 

"To unsuspecting consumers, fake products can appear legitimate because of the Fulfillment by Amazon program, which lets manufacturers send their goods to Amazon's fulfillment centers and hand over a bigger commission, gaining the stamp of approval that comes with an FBA tag"

 

http://www.cnbc.com/2016/07/08/amazons-chinese-counterfeit-problem-is-ge...

FoggyWorld's picture

The games are ruining Etsy.   Bought a custom made coat from a very American sounding tailor with a very American name who said he was in a very American Colorado town.  Supplied the proper measurements and to my surprise received a balled up coat from China.   Top fits fine but the bottom wouldn't close on an underweight 12 year old.   No real recourse at Etsy who makes sure you cannot communicate with them - only with the fraudulent Chinese seller.

And I'm far from the only one who has been stuck and I who was a big Etsy customer before that IPO, just will never return.

grasha87's picture

Trump and Jim Rickards both blame free trade and comparative advantage on the problems in the U.S., but here's why they are wrong:

https://bunky1787.wordpress.com/2017/06/04/jim-rickards-free-trade-a-bar...

nmewn's picture

Amazon not licking it's CIA masters boots clean enough?

pitz's picture

But don't the Amazon pumpers claim that Amazon has this huge treasure trove of hidden "profits" that would magically appear if they "stopped investing"? 

 

LOL, its crazy that grown men actually believe a word of what's been said by that company.

Handful of Dust's picture

There's one heck of alot new sellers on there 'Just Launched" that offer prices almost oo good to be true...all from ....CHINA!

 

By the time you find out they never even shipped the item, those Mainlanders will be long gone with the loot, probably looking at buying more condos in Vancouver (with your money).

pitz's picture

Only problem is, there's little to no evidence of Mainlanders bringing any money with which to buy condos in Vancouver.  The Vancouver RE market is almost entirely bought with large amounts of Canadian-issued credit.

Blankenstein's picture

They made up a fair share of the market.  No doubt lots of money laundering, stolen money etc.

 

 "The higher the price point, the greater the percentage of Chinese buyers," said Dean Jones, principal and owner of Realogics Sotheby's International Realty in Seattle. Chinese buyers made up less than a quarter of buyers in 2014 but to about 35% of buyers in 2015 and now about 50% or more in 2016 in the most popular neighborhoods"

https://www.forbes.com/sites/ellensheng/2017/03/02/seattle-real-estate-s...

 

"In what's being described as a landmark case, a businessman accused of disappearing from China, after withdrawing a loan there equivalent to $10 million and reappearing in Vancouver in possession of several multi-million dollar Lower Mainland properties, has been ordered to repay the money."

 

http://www.cbc.ca/news/canada/british-columbia/chinese-real-estate-inves...

Callz d Ballz's picture

I see dead unicorns.

IENTJ's picture

"Pride goeth before the fall ..."

 https://youtu.be/uMkeiZXAW8I

silverer's picture

Oh c'mon. It's just not true they're like Tesla. Right?

SloMoe's picture

Curious that they just don't issue stock.  That said, I can see Amazon turning into a big roll-up to maintain growth, antitrust permitting.

Don Sunset's picture

If the S&P 500 grading system was legit, would there ever be serious bubbles?

sheikurbootie's picture

One of my family few mantra's "never invest in retail food". 

Everyone thinks grocers, restaurateurs etc. are getting rich.  The reality is it's a extremely low margin business and the hired help is unreliable/low quality.  Theft is common, food spoilage, distribution is a nightmare.   It's like a bad organized crime movie. 

Amazon will have it's lunch eaten in retail food.  Maybe this will bring back Amazon.bomb

 

Hal n back's picture

And with the low margins, the proposed california business tax, 3% of sales, to pay foy single payer wiil put many more companies there in stress and foce them to move out taking jobs with them.

decentralisedscrutinizer's picture

 

Why waste time on this alligator when the swamp’s most critical economic and political problems revolve around the hegemony of a global corporate cartel, which is headquartered in the US because this is where their dominant military force resides. The US Constitution is therefore the “kingpin” of an all-inclusive global financial empire. These fictitious entities now own the USA and command its military infrastructure by virtue of the Federal Reserve Corporation, regulatory capture, MSM propaganda, and congressional lobbying.

 

The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual states, smaller sovereign nations, and eventually to buy out the USA itself. The only way The People can regain our sovereignty as a constitutional republic now is to severely curtail the privileges of any corporation doing business here. To remain sovereign we have to stop granting corporate charters to just any “suit” that comes along without fulfilling a defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't afford to privatize our Treasury to transnational banks anymore. Government must be held responsible only to the electorate, not fictitious entities; and banks must be held responsible to the government if we are ever to restore sanity, much less prosperity, to the world.

 

It was a loophole in our Constitution that allowed corporate charters to be so easily obtained that a swamp of corruption inevitably flooded our entire economic system. It is a swamp that can't be drained at this point because the Constitution doesn’t provide a drain. This 28th amendment is intended to install that drain so Congress can pull the plug ASAP. As a matter of political practicality we must rely on the Article 5 option to do this, for which the electorate will need overwhelming consensus beforehand. Seriously; an Article 5 Constitutional Convention is rapidly becoming our only sensible option.

 

This is what I think it will take to save the world; and nobody gets hurt: 28th Amendment

 

28th Amendment:

 

Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to:

 

1, prohibitions against any corporation; a, owning another corporation; b, becoming economically indispensable or monopolistic; or c, otherwise distorting the general economy;

 

2, prohibitions against any form of interference in the affairs of; a, government, b, education, c, news media; or d, healthcare, and

 

3, provisions for; a, the auditing of standardized, current, and transparent account books; b, the establishment of state and municipal banking; and c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.

    

Åristotle's picture

If one of the intended aims of this proposal is to attack or dismantle the third national bank, The Federal Reserve, then the method ought not to be to grant greater centralized power to the federal government but instead to repeal the act of congress that created it. Likewise, it seems that many of these prohibitions and provisions fall under the purpose of the 10th amendment. Probably better to first encourage allegiance to the constitutional items that already do exist then to create new ones.

VWAndy's picture

 Good thing they have all that money they made over the years to get them thru a slower year.

Too-Big-to-Bail's picture

-So I guess if Amazon is going to become more leveraged than 1x, they will need to change the name from Whole Foods to Fractional Reserve Foods.

Fuck what a laugh, the big banks with excelent triple 'A' ratings yet are all leveraged at least 30-to-1 with the Derivatives market that makes up over 10x the World GDP and are only one bank run away from insolvency.

I wonder what Bezos had to do to get on someone's black list -- probably nothing as nothing personal only the leeches exerting their might to lower the stock value which they have no doubt already shorted

Tod E. Tosspot's picture

What big bank (or small for that matter) has a AAA rating? The only two AAA-rated companies in the US are J&J and Microsoft.

crosey's picture

I have a funny feeling that this deal will end up hurting Amazon.

Hal n back's picture

Not as long as central banks buy amazon stock.

VWAndy's picture

 This is one of those buis built on the fiat magic to wipe out mainstreet. They dont need to make a proffit. You cant compete with that if you do need to actually make a proffit.

  Bad money drives out the good. It is what it is.

  That said its a pretty smart way to greewash mail order food.

TheSilentMajority's picture

Amazon only loses 20% on everything they sell & deliver, but they make up for it with volumes.

FoggyWorld's picture

Think that is changing.   He is using third party sellers who buy, hold and ship things while Amazon merely processes the orders via its computers. And now Bezos is going into banking and bet he lends small folks just enough money to set themselves up as third party vendors.

That cuts way down on his costs of both stock for his fewer shelves, handling and shipping even if done by robots and he may soon get close to making a profit on merchandise.   Time will tell.

sheikurbootie's picture

Foggy, you totally missed it.

Glyndwr will return's picture

Overdue. Some credibility for a ratings agency. Must be a blue moon.

joebren's picture

What can go wrong, we all know groceries are a HUGH margin business!

Cordeezy's picture

Amazon is not even profitable, yet.

 

 

www.escapeamazon.com


equity_momo's picture

a company with a PE of 180 that only just turned profitable buying a company that sells Pumpkin spice latte flavored beer for $10b.

I agree with Yellen , i dont see any sign of asset bubbles here.

Spectre's picture

If I was Bezos, over the the nexrt 12-18 months I'd quietly sell all of my AMZN position .  Billions in the bank and fuck all of this nonsense.

Whodathunkit's picture

Listened to a presentation re state of retail and amazon came up. The make 0$ on retail side because of the shipping costs. Most income from services like cloud computing for .gov Now they think they can run themselves a high end grocery chain??

Zuhalter's picture

Funny, every article on this deal I read today says it's all cash with no mention of debt financing. So how can S&P be saying it's debt financed?

Tod E. Tosspot's picture

Whole Foods shareholders will be paid in cash. Amazon will likely borrow this cash.