DBRS Rates $2 Billion Home Depot Issue at A (low), Stable Trend

DBRS has today assigned a rating of A (low) with a Stable trend to The Home Depot, Inc.’s (Home Depot) issue of the following senior unsecured notes (the Notes):

-- $1 billion, 4.4% ten-year notes maturing April 1, 2021;
-- $1 billion, 5.95% 30-year notes maturing April 1, 2041.

The Notes will rank pari passu with Home Depot’s other senior unsecured indebtedness. Home Depot intends to use the proceeds from the sale of the Notes to refinance $1 billion of senior notes that came due in March 2011 and to repurchase $1 billion of outstanding shares through an accelerated share repurchase program. The accelerated share repurchase is in addition to the Company's previously announced intention to repurchase approximately $2.5 billion of outstanding shares throughout 2011 using excess cash generated by the business.

Home Depot’s Notes issuance and intended use of proceeds remain within the parameters of the current credit ratings, particularly in the context of a more stable economic environment.

DBRS notes that a recovering economic environment and improved operating performance led to stronger sales growth and margins for the year ended January 30, 2011 (F2010). With EBITDA of $7,455 million (compared to $6,510 million a year earlier), the Company’s lease-adjusted debt-to-EBITDAR improved to 1.76x (using DBRS multiple of 6x) for F2010 from 1.94x in F2009.

Going forward, DBRS expects Home Depot will continue to generate low-single digit sales growth and moderate margin improvement. As such, EBITDA may increase to $8 billion resulting in free cash flow (after dividends) nearing $2.5 billion for F2011. Combined with the accelerated share repurchases, DBRS forecasts leased-adjusted debt-to-EBITDAR to be in the 1.8x to 1.9x range at the end of F2011.

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

The applicable methodology is Rating Merchandisers, which can be found on the DBRS website under Methodologies.