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03 Feb 2011
Approximately $500mm of rated debt affected
New York, February 03, 2011 -- Moody's Investors Service affirmed the B1 corporate family and B2 probability
of default ratings for Savers, Inc. (Savers) and assigned
a Ba3 rating to its proposed $460 million senior secured term loan.
Savers intends to use proceeds primarily to refinance approximately $323
million of its outstanding term loan and to fund the acquisition of 18
stores from Apogee, a thrift store operator owned by Golden Gate
Capital. The transaction increases debt-to-EBITDA
to the high 5 times range from approximately 5.4 times (as per
Moody's standard adjustments, including the capitalization of operating
leases, and for the trailing twelve months ended October 1,
2010) and leaves the rating weakly positioned. However, Moody's
anticipates leverage will decline over time with both EBITDA growth and
debt repayment, and the proposed acquisition increases scale and
modestly enhances geographic diversity.
Savers' shareholders Freeman Spogli & Co. and Savers
chairman Tom Ellison will contribute approximately $20 million
of cash equity to help fund the $180 million purchase price.
In Moody's opinion, the combination creates minimal integration
risk given the comparable business models, and the Apogee stores
to be acquired are currently profitable.
A summary of today's actions follows.
....Affirmed B1 Corporate Family Rating
....Affirmed B2 Probability of Default Rating
.... Senior Secured Bank Credit Facility,
Assigned Ba3, LGD2, 29%
Please see Moody's January 28, 2011, press release on
Savers for more information. At that time, Moody's
expected Savers would increase its existing term loan. The proposed
transaction involves a new term loan with the maturity extended to February
2017 from March 2016.
Savers high leverage (in the high 5 times debt-to-EBITDA
range pro forma for the proposed transaction) positions it weakly for
its B1 corporate family rating. However, given the company's
proven resilience of performance throughout economic cycles, including
consistent same store sales growth, Savers can manage the high debt
load more easily than some of its more volatile retail peers. Savers
remains small relative to other rated retail operators, but benefits
from good growth prospects (revenue rose to approximately $765
million in 2010, from just under $500 million in 2005).
Good liquidity, including expectations for positive free cash flow,
supports the rating.
The stable outlook incorporates expectations for successful integration
of the Apogee stores and some debt reduction with positive free cash flow,
which should facilitate a decline in leverage to the low 5 times range
over time. The purchase agreement includes a 3 year option for
Savers to acquire 12 additional Apogee stores. A modest increase
in debt to fund this acquisition would not necessarily have negative ratings
implications provided we anticipated continued positive free cash flow
and a return to more appropriate credit metrics over the intermediate
Any operational challenges contributing to an inability to generate free
cash flow or lack of progress on reducing leverage toward the low 5 times
range could result in a negative outlook or downgrade. A deterioration
of the liquidity profile or sustained declines in same store sales would
also likely negatively impact the rating.
The weak positioning of the B1 corporate family rating and the company's
lack of scale limit upward ratings momentum. An upgrade or positive
outlook is highly unlikely absent a transformative transaction that materially
improved both scale and credit metrics.
The most recent rating action for Savers occurred on January 28,
2011. At that time Moody's affirmed the B1 CFR.
The principal methodologies used in this rating were Global Retail Industry
published in December 2006, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Headquartered in Bellevue, Washington, Savers, Inc.
(Savers) operates approximately 250 for-profit thrift stores in
the United States, Canada, and Australia under the Savers,
Value Village, and Village des Valeurs brand names. Its annual
revenue is approximately $765 million.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Savers B1 CFR following announced acquisition
250 Greenwich Street
New York, NY 10007
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