Approximately $465 million of rated debt affected
New York, March 03, 2014 -- Moody's Investors Service today assigned a B1 rating to the proposed $465
million senior secured first-lien term loan of OSP Group,
Inc. ("OSP"). The B2 Corporate Family and B2-PD
Probability of Default Ratings were affirmed. The outlook remains
stable. The proceeds from the proposed term loan, $40
million of an incremental second lien term loan and cash from the balance
sheet will be used to refinance existing indebtedness, pay transaction
fees and expenses and fund a dividend to shareholders.
The B1 rating on the company's current $372 million first
lien term loan due 2020 is unaffected, and will be withdrawn at
the close of this transaction.
The following rating was assigned:
-- $465 million Senior Secured First Lien Term Loan
due 2021 at B1 (LGD3, 38%)
The following ratings were affirmed:
-- Corporate Family Rating at B2;
-- Probability-of-Default Rating at B2-PD.
RATINGS RATIONALE
OSP's B2 Corporate Family Rating reflects the company's aggressive financial
policies that drive high pro forma debt and leverage. The proposed
transaction will be the second dividend in seven months. Pro forma
for the proposed transaction, debt/EBITDA (incorporating Moody's
standard analytical adjustments) is expected to approach 5.5x times
for the latest twelve month period ended December 31, 2013.
The rating also reflects the company's niche focus on the direct-to-consumer
plus-size apparel market, modest revenue scale in the retail
and apparel industry, and a high reliance on print media mailings
to drive sales.
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 the solid growth trends in online retail spending. The company's
liquidity is expected to be good with positive cash flow and availability
under a proposed $60 million ABL revolver (not rated by Moody's)
expected to be more than sufficient to cover seasonal working capital
needs, modest capital spending and debt amortization over the next
twelve months.
The stable rating outlook reflects the expectation for continued steady
revenue and earnings growth and positive free cash flow generation.
However the outlook also reflects Moody's view that longer term
de-leveraging will likely be modest due to aggressive financial
policies, with leverage maintained over 5.0x times.
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 to below 5.0 times
and EBITA/interest expense above 2.5 times, through a combination
of profitable growth, positive free cash flow and using excess cash
to pay down debt. A higher rating would also require maintenance
of good liquidity.
The B1 rating assigned to the company's proposed first lien term loan
facility reflects the B2-PD overall probability of default of the
company and a loss given default assessment of LGD3, 38%.
The facility benefits from the sizeable amount of junior claims in the
proposed capital structure, including the proposed $145 million
second lien term loan(not rated by Moody's), as well as its first
lien position on substantially all assets of the company, other
than accounts receivable, inventory and cash which are pledged on
a first lien basis to the company's proposed ABL credit facility.
The principal methodology used in this rating was the Global Retail Industry
Methodology 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.
Headquartered in New York, NY, OSP Group, Inc.
is a retailer that specializes in selling plus size apparel nationally
through its direct-to-consumer print media and e-commerce
websites. The company operates 6 unique lifestyle brands through
its branded websites and print media, including Woman Within,
Roaman's, Jessica London, King Size, BrylaneHome and
OneStopPlus.com.
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.
Michael M. Zuccaro
Asst Vice President - 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
Janice Ann Hofferber
Associate Managing Director
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 assigns B1 to OSP's proposed first-lien term loan