(Bloomberg) -- FNAC Darty SA, the retailer whose largest shareholder is billionaire Daniel Kretinsky, is looking at potential acquisitions as its debt levels move closer to targets, Chief Financial Officer Jean-Brieuc Le Tinier said.

The French company, which operates in 13 countries, is replacing €650 million ($706 million) of bonds due in 2024 and 2026 with the proceeds of a new bond transaction maturing in 2029, as well as around €100 million of its own cash. The company’s net debt ratio improved last year to 1.8 times earnings before interest taxes, depreciation and amortization compared with 2 times at the end of 2022. 

“It’s very important for us to have a leverage of around 1.5 times,” said Le Tinier in an interview. “That will leave some room, a lot of room, for mergers and acquisitions or dividends. But we are prudent on dividends, so we would prefer to do M&A if we have good targets.”

FNAC Darty, which is rated one step below investment grade, is considering corporate acquisitions as borrowing conditions for high-yield issuers have improved in recent months. Concerns over global recession in the short term have cleared up and traders are pricing in expectations that policymakers including the European Central Bank will move into a rate-cut cycle this year.

Sales of Western European corporate high-yield bonds so far this year have reached €26.3 billion, or more than 50% of the volume for the whole of 2023. However, that year saw the second lowest annual volume in the last decade, in part because elevated all-in yields made it harder for companies to raise finance for M&A deals. 

FNAC Darty had almost €7.9 billion of revenue last year, most of which came from France and Switzerland. The company also operates in Spain, Portugal, Belgium and Luxembourg and is growing internationally through its franchise business, with 16 stores in Africa and the Middle East and 18 in French overseas departments and territories.

Acquisition Targets 

M&A targets “could be companies in what we do today - retail stores or click and collect,” said Le Tinier, adding that there aren’t many targets at the moment. He also said that “if we find good targets in services, we could have a look at it.”

The company is one of the main French retailers providing televisions, computers, and large and small appliances, said Le Tinier, adding that the business is also working well in Belgium.

“We are the one company that could help you maintain and develop and repair your home,” said Le Tinier. So in that space “you can think of other categories.”

FNAC Darty last month sold 550 million euros of five-year bonds at a 6% yield. The transaction was priced based on a midswap rate in euros at 2.8%, so the company is looking to enter into derivative contracts that will allow it to get paid if swap rates decline significantly below that level, he said.

Hedging Debt

“The company is contemplating hedging its debt in order to maintain a maximum coupon of 6% but to benefit from a potential future decrease of interest rates,” Le Tinier said.

The proceeds of the bond transaction are being used to cancel its bonds maturing in 2024 and 2026, so the next borrowing to refinance is a convertible bond maturing in 2027, said Le Tinier. The company is rated by S&P Global Ratings at BB+ with a negative outlook.

“I hope that if we have a good 2024 that they’ll come back to a stable or even positive” outlook, he said. 

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