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Rating Action:

Moody's Downgrades Vince's CFR to Caa2; Outlook Changed to Negative

22 Jun 2017

Approximately $45 million of debt affected

New York, June 22, 2017 -- Moody's Investors Service ("Moody's") downgraded Vince, LLC's ("Vince") Corporate Family Rating (CFR) to Caa2 from Caa1 and Probability of Default Rating to Caa2-PD from Caa1-PD. The Caa2 rating on the company's senior secured first lien term loan due 2019 and SGL-4 Speculative Grade Liquidity Rating were affirmed. The outlook was changed to negative.

"The downgrade and negative outlook reflect ongoing weak operating performance in the business and a worsened liquidity profile, that is highlighted by negative free cash flow, greater reliance on the company's ABL facility, and an expectation that Vince's term loan credit agreement will need to be amended over the near term in order to avoid an event of default," said Moody's Assistant Vice President and lead analyst Dan Altieri.

Over the LTM period ended April 29, 2017, Vince has seen revenue declines in the mid-teens percentage range, with Moody's adjusted EBITDA lower by around $25 million (before accounting for operating leases), which has resulted in the company breaching the net leverage ratio test in its term loan credit agreement in the last two fiscal quarters. Vince has since made two specified equity contributions for the fourth quarter of 2016 and first quarter of 2017 totaling around $18 million to cure the violations and keep the company in compliance. However these payments have substantially reduced the company's balance sheet cash as the proceeds from the equity contribution were used to repay borrowings outstanding under the revolver. In addition, negative free cash flow of around $30 million over the LTM period has resulted in greater reliance on the company's $80 million asset-based revolving credit facility ($70 million loan cap) due 2020. As of April 29, 2017, there was about $21 million was drawn on the company's ABL facility with approximately $15 million available for borrowing, versus only $5 million outstanding at year end 2016 and with $27 million available for borrowing.

The SGL-4 liquidity rating further reflects Moody's expectation that operating performance over the next few quarters will not improve enough to remain compliant with the net leverage ratio test in the company's term loan credit agreement. Barring an amendment to the facility, we expect Vince will breach the covenant which after the applicable grace period would result in an event of default. (Vince's credit agreement prohibits no more than two equity cures in any four quarter period.) The ABL facility also contains a springing minimum EBITDA covenant ($20 million) which was temporarily modified to be tested if availability falls below the greater of 12.5% of the loan cap or $5 million (from 15% or $10 million), giving the company a little more availability on the facility before triggering the test. Compliance with this test is also less certain given Moody's expectation for continued reliance on the facility and a potentially lower borrowing base as a result of the lower cash balance (cash is temporarily permitted to be included in the borrowing base calculation).

Moody's notes that Vince has received a rights offering commitment letter from Sun Capital Partners V, L.P. ("Sun Capital"), the company's majority shareholder, for $30 million which requires among other things the company enter into an amendment to its term loan agreement that is acceptable to Sun Capital. If Vince is able to meet the terms of the rights offering and receive $30 million of cash proceeds, it would improve the company's near term liquidity profile. However, over the longer term the company still needs to address ongoing declines in the business.

The negative outlook reflects Moody's expectation that the company will be challenged to reverse recent operating trends in a difficult retail environment, which would likely result in further negative rating actions. If the company can improve its liquidity profile, including addressing potential near term covenant violations, improving its cash position, and stabilizing negative free cash flow trends, the outlook could be changed to stable.

Moody's took the following rating actions today:

Issuer: Vince, LLC

Corporate Family Rating, Downgraded to Caa2 from Caa1

Probability of Default Rating, Downgraded to Caa2-PD from Caa1-PD

$175 million ($45 million outstanding) Sr. Secured 1st Lien Term Loan due 2019, Affirmed at Caa2 (LGD4)

Speculative Grade Liquidity Rating, Affirmed SGL-4

Outlook, changed to Negative

RATINGS RATIONALE

Vince's Caa2 CFR reflects the company's very weak liquidity profile and credit metrics, as well as Moody's expectation that the company will require an amendment to its term loan credit agreement in order to avoid an event of default. The rating also reflects Vince's limited scale and high product concentration in premium priced women's apparel, a segment that appeals to a limited number of consumers and that is subject to very high fashion risk and fluctuating consumer tastes which are factors that have led to ongoing weak operating performance. The company's relatively limited track record with the brand having been established in 2002, as well has high distribution concentration at luxury department stores also constrains the rating. The three largest customers (Nordstrom, Saks Fifth Avenue and Neiman Marcus) represented 45% of total revenue in fiscal 2016. The rating is supported by Vince's modest amount of debt (only $45 million outstanding on the term loan and $21 million outstanding on the revolver as of April 29, 2017) which provides the company with some flexibility as it works through its current operational and capital structure challenges.

The affirmation of the Caa2 rating on the company's first lien term loan reflects its modest size in the capital structure, with only $45 million remaining outstanding, relative to the size of Vince's operating lease commitments and accounts payable remainder. It also acknowledges that Moody's believes there is enough value in the Vince brand name which would support a recovery in line with the Caa2 rating. The term loan is ranked below the company's $80 million ABL facility, which has a priority position in the capital structure, and is secured by a second lien position on the more liquid assets (accounts receivable and inventory) behind the ABL facility. The term loan has a first lien on essentially all other domestic assets (the primary value attributed to the Vince brand name).

Ratings could be downgraded if the company is unable to resolve its current liquidity constraints, including its modest cash balance and the likely violation of its financial maintenance covenant, resulting in a heightened risk of default. A downgrade would also be likely if recent operating trends including lower revenue and EBITDA, and negative free cash flow continue. The rating on the term loan could also be downgraded should Vince take actions that would weaken the term loan lenders priority claim on the Vince brand name.

An upgrade would require sustained improvement in the business including topline and EBITDA growth, as well as an improved liquidity profile including positive free cash flow, and an expectation that the company will remain compliant with its credit agreements.

The principal methodology used in these ratings was Global Apparel Companies published in May 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Vince, LLC designs, manufactures and markets apparel for women and men under the "Vince" brand. The company's products are sold globally in luxury department stores such as Neiman Marcus, Nordstrom, Saks Fifth Avenue and Harrods, as well as in the company's branded retail stores and on its ecommerce website. As of April 29, 2017 the company operated 54 stores in the United States and generated LTM revenue of approximately $259 million.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 Altieri
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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