Moody’s Investors Service placed eBay’s ratings under review for downgrade following the company’s announcement of its plan to divide into two separate, publicly traded companies, in a transaction that will effect a spin-off of its PayPal subsidiary.
eBay is positioning PayPal for strength, announcing Tuesday that PayPal would be debt-free after the split, with the “new” eBay taking on the current company’s debt. The Wall Street Journal said of the $7.5 billion debt, “That is quite the inheritance,” and it wondered how eBay’s cash pile would get divided.
Moody’s is also wondering how much of the estimated $15 billion in cash and liquid investments would be allocated between the two companies.
The ratings placed under review include the A2 senior unsecured ratings and the Prime-1 short-term rating. Credit rating downgrades make it more expensive for companies to raise future debt. Analysts are speculating eBay may be positioning the marketplaces business for an acquisition and say it could be attractive to newly-public Alibaba.
“The rating review reflects Moody’s view that eBay’s planned spin-off plan will result in a smaller company, with a weaker credit profile than the current combined business,” Moody’s wrote in its note.
Moody’s expects to keep eBay’s ratings under review for downgrade until the spin-off has substantively been completed, expected in the second half of 2015.
“The review could lead to a multi-notch downgrade, but will likely result in eBay retaining investment grade status.”
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