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04 Feb 2003
MOODY'S INVESTORS SERVICE CONFIRMS THE SENIOR RATINGS AND STABLE OUTLOOK OF KELLWOOD COMPANY
Moody's Investors Service confirmed Kellwood Company’s (“Kellwood”) Ba1 senior implied rating and senior unsecured issuer rating following the company’s announcement of the acquisition of Briggs New York Corporation (“Briggs”), a leading manufacturer of women’s pants and skirts for the moderate market. The rating outlook is stable.
The confirmation reflects the anticipated benefits to Kellwood from the acquisition, including Briggs’ experience in quick replenishment management, working capital management and the potential for brand extension of the purchased asset as well as product extension within Kellwood’s portfolio of brands. To date, Kellwood has maintained a sizeable cash balance. The confirmation assumes that Kellwood would finance the acquisition prudently, that leverage will not increase and that there will not be a material introduction of secured debt.
The stable outlook reflects Kellwood’s strong position as a leading supplier of moderate priced women’s apparel as well as the company’s improving balance sheet and cash flow generation. Going forward, Moody’s will continue to monitor Kellwood’s market share and profitability. Continued improvements in cash flow generation coupled with moderate leverage could lead to a positive outlook. However, volatility in revenues and earnings associated with a challenged retail sector, an inability to sustain meaningful profitability margins and cash flow growth, or unanticipated integration challenges could result in a negative rating pressure.
In January 2003, Kellwood exercised its option to increase its revolving credit facility line by $40 million, to $280 million. The expansion of the credit facility provides further liquidity for acquisition purposes, a major growth vehicle for the company in the past. Moody’s does not rate the credit facility.
Despite acquisition of Gerber Childrenswear, Inc. on June 25, 2002, Kellwood’s year to date revenues through nine months ending October 31, 2002 decreased 8% (or approximately 10% excluding the acquisition). This decline was primarily due to lower selling volume associated with decreasing demand at department and specialty stores. The company’s gross profit margin for nine month ending October 31, 2002 improved 60 bps, to 20.7% from a comparable period a year ago due to improved sourcing. The EBITDA margin for the period remained flat, at approximately 6.4% as a result of revenue decline and under-absorption of the fixed portion of SG&A. Going forward, cost savings associated with lower cost sourcing and facility realignment should improve Kellwood’s profitability margins.
The company’s debt protection measures show some improvement as a result of better working capital management and lower borrowing. As such, Kellwood’s leverage for the trailing twelve months ending October 31, 2002, measured as total debt to EBITDA, improved to 2.8 times from approximately 3.2 times for a comparable period a year ago. A lower debt balance and decreased cost of borrowing resulted in improved interest coverage. Measured as EBITDA to interest expense, year-to-date interest coverage improved to 5.0 times from 4.2 times a year ago, and EBIT-based interest coverage improved to 3.8 times from 3.3 times a year ago.
The expanded revolving credit facility, as well as lower working capital needs due to improved inventory and accounts receivable days, provide ample borrowing capacity. Further, the company does not have any significant payments associated with long-term debt maturity in the next several years.
Moody's Investors Service confirmed the following long-term ratings of Kellwood Company:
Ba1 rating on $150 million issue of 7.625% senior unsecured debentures due 2017;
Ba1 rating on $150 million issue of 7.875% senior unsecured notes;
Ba1 senior implied rating; and
Ba1 senior unsecured issuer rating.
The rating outlook remains stable.
Kellwood Company, based in St. Louis, Missouri, is a marketer of apparel and camping soft goods. Briggs New York Corporation is a leading manufacturer of women’s pants and skirts for the moderate market.
No Related Data.
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