MOODYS CONFIRMS CARSON PIRIE SCOTT'S SECURED BANK DEBT AT Baa3
New York, 4/17/1997 -- Moody's Investors Service confirmed the Baa3 rating of Carson Pirie Scott's $150 million secured revolving credit facility expiring May 1999. The "senior implied" rating for the overall enterprise is Ba1. The rating outlook is stable.
The ratings reflect Carson Pirie Scott's relatively limited store base and geographic diversification, acquisitive growth strategy, and need to maintain capital spending to renovate and relocate stores. The ratings also take into account its moderate leverage, strong customer loyalty, and the positive effects of remodeling stores and opening stand-alone furniture stores.
The bank debt rating also reflects its secured nature. The facility is guaranteed by all of Carson Pirie Scott's subsidiaries (except the receivables subsidiary) and is secured by a lien on assets that include inventory, intangibles and trademarks, and the subordinated notes and seller notes payable from its special purpose receivables subsidiary. Availability of the bank facility is determined by a borrowing base formula equal to the lesser of 40% of the adjusted retail value of inventory or 60% of current cost.
The company's operating profits and balance sheet strength continue to improve. EBITDA margins (excluding non-recurring items) have climbed each year to 8.7% in 1996. The company owns 23 of its stores, which keeps rent expense relatively low. The fixed-charge coverage ratio is healthy at about 2.0 times. The ratio of adjusted debt to EBITDAR, which includes both rents and credit card debt, is about 2.5 times and is expected to remain fairly stable. Capital expenditures will remain fairly high as a result of renovations and relocations, but Moodys believes these needs can be sustained by internally generated cash flow. However, the company is actively interested in growing through acquisition which may increase debt in the future. Its credit card program is financed through an on-balance sheet receivables conduit which provides for up to $200 million in financing.
Carson Pirie Scott operates 53 full-line department stores selling moderate-to-better merchandise. About half are in the Chicago area, with the rest in Illinois, Wisconsin, Indiana, and Minnesota. The risk of geographic concentration is partly offset by the limited presence of national department store chains in the Chicago market. Carson Pirie Scott has recently opened four stand-alone furniture stores carrying better-quality merchandise. The larger formats perform significantly better than in-store furniture departments, and more are expected to follow.
The loyalty of the chain's customers derives largely from a perception of "value", particularly in apparel. Moody's believes Carson Pirie Scott's moderate-priced strategy can squeeze it between designer-oriented department stores and mass merchants. However, the strategy may prove to be a benefit in luring specialty department store customers during an economic downturn. Same store sales growth has been moderate for the past two years, and sales per square foot, while improving to $140, are still below industry average. The company is on a program to enhance the appeal of its stores through an extensive remodeling program and by including more vendors and designer labels. About 80 designer shop-in-shops have been rolled out in selective stores where management believes demographics will support higher end merchandise.
Carson Pirie Scott, headquartered in Milwaukee, Wisconsin, operates 53 department stores and 4 furniture stores in the upper Midwest. The company's store names include Bergners and The Boston Store.
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