Approximately $465 million of rated debt affected
New York, June 06, 2012 -- Moody's Investors Service today affirmed Fifth & Pacific Companies,
Inc. ("FNP" - previously Liz Claiborne,
Inc.) B2 Corporate Family and Probability of Default ratings.
At the same time Moody's assigned a B2 rating to the company's
proposed $150 million (face amount) 'add on' senior
secured notes due 2019. The rating outlook remains stable.
Moody's also assigned a Speculative Grade Liquidity rating of SGL-3
to the company. The rating assigned to the new notes is subject
to receipt and review of final documentation.
The following ratings were affirmed (and LGD assessments amended)
Corporate Family Rating at B2
Probability of Default Rating at B2
$220 million senior secured notes due 2019 at B2 (LGD 4,
54% from LGD 3, 44%)
EUR 81.5 million senior unsecured notes due 2013 at Caa1 (LGD 6,
91%)
The following rating was assigned
$150 million (face amount) senior secured notes due 2019 at B2
(LGD 4, 54%)
Speculative Grade Liquidity rating at SGL-3
RATINGS RATIONALE
FNP is proposing to issue up to $150 million (face amount) of new
notes, proceeds of which will be used to tender for the company's
remaining EUR 81.5 million (appx. $109 million) senior
unsecured notes, to pay fees and related expenses of the offering
and tender and to fund additional cash to the balance sheet. We
expect the incremental cash will be used to fund capital expenditures
and the possible buyout of the remaining interest in its kate spade venture
in Japan.
The affirmation of FNP's B2 Corporate Family Rating reflects our
expectations that while pro-forma leverage will moderately rise
following the proposed transaction, it will strengthen the company's
overall liquidity profile. The affirmation also reflects the reduction
in the outstanding balance of the company's (unrated) convertible
unsecured notes -- approximately $43 million of these notes
have been converted to common shares of FNP.
FNP's B2 Corporate Family Rating reflects its still sizable debt burden
despite recent asset sales. Debt/EBITDA remains in the mid five
times range and EBITDA less capital expenditures remains insufficient
to fully cover cash interest costs. The ratings also reflect the
negative recent trends at its Juicy Couture brand. The rating is
supported by the company's adequate overall liquidity profile, as
it now has sufficient capacity to settle its meaningful debt maturities
in 2013 even absent the proposed refinancing. The rating also reflects
the strong growth at kate spade and our expectations its growth will continue,
as well as expectations meaningful reductions in corporate overhead can
be achieved over the course of 2012.
Should the transaction close on the proposed terms and conditions,
the company's unsecured notes due 2013 would become equally and
ratably secured with the same collateral as the company's 2019 senior
secured notes. In that event, we would expect the EUR 2013
notes would likely be upgraded to B2, the same as the secured note
rating.
The B2 rating assigned to the senior secured notes due 2019 reflects their
first lien position on the Juicy Couture, Lucky Brand, and
kate spade trademarks as well as their second lien position on the assets
that secure the company's $350 million asset based lending facility.
The B2 rating takes into consideration that the company's $350
million asset based lending revolver has relatively better recovery prospects
due to its first lien position on the company's most liquid assets.
The SGL-3 Speculative Grade Liquidity rating reflects the company's
adequate overall liquidity at the current time. The SGL-3
reflects that the company's 2013 Euro notes come due in July,
2013 and that at the current time we believe the company would be likely
to need to access its asset based revolver to fully redeem the notes.
The SGL-3 rating reflects the company's access to the asset
based revolver which has a significant amount of excess capacity (in excess
of $200 million as of 3/31/12). Conclusion of the proposed
note offering would provide the company with a meaningful amount of additional
liquidity and the SGL rating would be reassessed on successful close of
the new notes.
The stable rating outlook reflects our expectation that FNP will continue
to have high leverage and moderate interest coverage, but that interest
coverage will improve as earnings recover. The stable outlook also
incorporates our expectations the company will make meaningful reductions
in corporate overhead over the course of 2012.
Ratings could be upgraded if FNP is able to reverse negative trends at
Juicy Couture, retain a good liquidity profile, and improve
interest coverage. Quantitatively, ratings could be upgraded
if EBITDA less capital expenditures/interest rises above 1.75 times.
Ratings could be lowered if Juicy Couture's negative trends persist and/or
it appears that the company will report a consolidated operating loss
over the course of 2012.
The principal methodology used in rating Fifth & Pacific Companies
was the Global Apparel Industry Methodology published in May 2010.
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.
Headquartered in New York, NY Fifth & Pacific Companies,
Inc. ("FNP") [formerly Liz Claiborne, Inc.]
is a designer and distributor of apparel and accessories whose primary
owned brands include Juicy Couture, kate spade and Lucky Brand.
Pro-forma revenues are around $1.4 billion.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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
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Scott Tuhy
Vice President - Senior 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
Kendra M. Smith
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 Fifth & Pacific's B2 CFR, assigns B2 to add-on secured notes due 2019.
