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Related Issuers
Rating Action:

Moody's Affirms FULLBEAUTY's B2 CFR and B1 Instrument Rating; Outlook Stable

11 Mar 2015

Approximately $625 million of rated debt affected

New York, March 11, 2015 -- Moody's Investors Service ("Moody's") affirmed FULLBEAUTY Brands, Inc.'s ("FULLBEAUTY") B2 Corporate Family Rating (CFR) and B1 instrument rating on its First Lien Term Loan due 2021 after the company announced a proposed $160 million add-on to the facility. The outlook remains stable. Proceeds of the add-on, including a $20 million add-on to the company's unrated second lien term loan, and approximately $40 million of balance sheet cash will be used to fund a $215 million dividend to the company's shareholders and pay transaction fees.

After accounting for the proposed dividend, the company will have distributed approximately $500 million in dividends to shareholders since the buyout by Charlesbank Capital Partners, Webster Capital, and certain management investors in February 2013. The dividend payments represent greater than 3.5 times the initial equity investment. However, due to strong operating performance over the same period, Moody's estimates adjusted pro-forma leverage through September 30, 2014 will be around 6x and should drop to the mid-to-low 5x range by the end of 2015, driven by additional top line and EBITDA growth.

See below for today's rating actions:

Issuer: FULLBEAUTY Brands, Inc.

Ratings Affirmed:

..Corporate Family Rating, Affirmed B2

.Probability of Default Rating, Affirmed B2-PD

.$625 million 1st Lien Term Loan due 2021 (includes $160 million add-on), Affirmed B1, LGD-3

.Outlook, Remains Stable

RATINGS RATIONALE

FULLBEAUTY's B2 CFR reflects the company's highly aggressive financial policies which have resulted in leverage sustained at elevated levels despite meaningful improvements in operating performance since the company's buyout. The proposed $215 million dividend will be the third (largely) debt financed dividend in less than 2 years and will result in Moody's adjusted pro-forma leverage through September 30, 2014 of around 6x. The rating also reflects the company's niche focus on the direct-to-consumer plus size apparel market and modest revenue scale in the retail and apparel industry. The company's rating is supported by favorable demographic trends due the increasing number of overweight and obese people in the U.S., the breadth of its product offering relative to many competitors, and its good liquidity profile. The rating is also supported by strong operating performance over the last two years and Moody's expectation for continued revenue and EBITDA growth over the next 12-18 months which should result in leverage declining to the mid-to-low 5x range.

Moody's expects FULLBEAUTY will maintain good liquidity over the next 12-18 months driven by positive cash flow and availability under its $60 million ABL revolver due 2019 (not rated by Moody's) that should be more than sufficient to cover seasonal working capital needs and modest debt amortization of about $6.3 million annually. The use of $40 million of balance sheet cash to fund the proposed dividend will likely result in near-term borrowings on the revolver to fund working capital, however we expect any drawdown on the facility will likely be paid down by the end of the second quarter with cash generated from operations. The company will also see elevated levels of capital spend beginning in the second quarter of 2015 associated with FullBeauty's corporate headquarters relocation, but capex should normalize by year end.

The first and second lien term loans do not contain any financial maintenance covenants, but the ABL has a springing Fixed Charge Coverage test of 1.0x which only occurs when availability is less than the greater of $5 million and 10% of the borrowing base. We do not expect the company will trigger the covenant over the next 12-18 months, but anticipate they would have sufficient cushion if it were tested.

The B1 rating assigned to FULLBEAUTY's first lien term loan is one notch higher than the company's CFR and reflects its senior position in the capital structure relative to the unrated $165 million second lien term loan (after accounting for the proposed $20 million add-on) and other junior claims including trade payables and leases. The first lien is secured by a first priority lien on substantially all assets of the company, with a second lien on the ABL priority collateral including accounts receivable, inventory and cash. The second lien is secured by second priority lien on substantially all assets of the company with a third lien on the ABL collateral.

The stable rating outlook reflects Moody's expectation for continued steady revenue and earnings growth and positive free cash flow generation that will allow for deleveraging to the mid-to-low 5.0 times range. It also reflects our expectation that financial policies or operating performance will not lead to further deterioration in credit metrics.

Ratings could be downgraded if revenue or earnings were to deteriorate, competitive pressure increase, or financial policies become more aggressive. Specific metrics include debt/EBITDA exceeding 6.5 times or EBITA/interest below 1.5 times. A deterioration in liquidity may also result in a negative rating action.

Ratings could be upgraded if the company were to demonstrate the willingness and ability to achieve and maintain debt/EBITDA below 5.0 times and EBITA/interest expense above 2.5 times, through a combination of profitable growth, positive free cash flow and the use of excess cash to pay down debt. A higher rating would also require the maintenance of good liquidity.

The principal methodology used in these ratings was Global Retail Industry published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Daniel A Altieri
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Affirms FULLBEAUTY's B2 CFR and B1 Instrument Rating; Outlook Stable
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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