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Investing.com -- Moody’s Ratings has lowered the commercial paper program rating of 7-Eleven, Inc. to Prime-2 from Prime-1. This decision is primarily influenced by the downgrade of Seven-Eleven Japan Co., Ltd.’s (SEJ) parent company, Seven & i Holdings Co., Ltd. (TYO:3382)’s senior unsecured rating to A3 from A2. SEJ, fully owned by Seven & i, offers an unconditional guarantee to 7-Eleven’s commercial paper program. This marks the end of Moody’s review for a downgrade of the commercial paper rating, which began on March 18, 2025.
Despite this downgrade, Moody’s has affirmed 7-Eleven’s Baa2 senior unsecured notes ratings and Baa2 long-term issuer rating. This affirmation is a reflection of 7-Eleven’s significant market position, strong brand recognition, and robust liquidity. However, the rating also takes into account pressures on 7-Eleven’s earnings due to a weaker consumer environment and increased competition in the U.S. The company’s rating is further constrained by its growth strategy, which relies heavily on acquisitions.
The negative outlook is based on Moody’s belief that the likelihood of 7-Eleven receiving support from SEJ has decreased significantly. This is due to Seven & i’s plans to sell a substantial stake in 7-Eleven to the public and the adoption of a more aggressive financial policy by Seven & i. The negative outlook also takes into account the challenging operating environment in the U.S. convenience store industry, which is facing financial difficulties among consumers, increased competition, and a steady drop in fuel gallons sold due to more fuel-efficient vehicles. Concerns about 7-Eleven’s final capital structure and the potential adoption of a more aggressive financial policy as an independent entity also contribute to the negative outlook.
7-Eleven’s credit profile acknowledges its standing as the largest convenience store operator in North America, its significant brand recognition, and good liquidity. However, the company’s earnings have been impacted by a weak consumer environment and increased competition in the U.S. The company’s acquisition-based growth strategy has also led to a substantial increase in leverage following the Speedway acquisition. Despite this, leverage has gradually improved as the company has prioritized debt reduction. As of December 31, 2024, the ratio of debt to EBITDA stood at 3.7x, while EBIT to interest was 4.0x.
The ratings could be upgraded if 7-Eleven demonstrates improved operating performance with sustained strengthening of credit metrics, maintaining EBIT/interest expense above 5.0x and debt/EBITDA below 3.25x. An upgrade would also require very good liquidity and a financial policy that supports credit metrics within the above levels. Furthermore, a higher rating would require SEJ to continue to guarantee the company’s commercial paper program.
On the other hand, the ratings could face downward pressure if there is a sustained deterioration in operating performance, a decrease in support from SEJ, or a more aggressive financial policy that results in a sustained deterioration in credit metrics. Specifically, ratings could be downgraded if debt/EBITDA rises above 4.0x or EBIT/interest remains below 4.0x. A sustained weakening of liquidity for any reason could also result in negative ratings pressure.
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