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Rating Action:

Moody's assigns Ba3 CFR to Fossil Group, Inc.

19 Sep 2019

New York, September 19, 2019 -- Moody's Investors Service ("Moody's") today assigned ratings to Fossil Group, Inc. ("Fossil" or "company"), including a Ba3 corporate family rating ("CFR"); Ba3-PD probability of default rating ("PDR") and a Ba3 rating on its proposed $200 million senior secured term loan. At the same time, Moody's assigned a speculative grade liquidity rating ("SGL") of SGL-1, reflecting an expectation for very good liquidity. The ratings outlook is stable.

Proceeds from the proposed term loan, along with a combination of cash and/or revolver borrowing, will be used to refinance the company's existing unrated senior secured term loan due December 31, 2020. The ratings are subject to completion of the refinancing and review of final documentation.

"Technological change, including smart watches and other wearable technologies, has significantly disrupted the traditional watch category, negatively impacting Fossil's sales and operating margins over the past four years," stated Mike Zuccaro, Moody's Vice President. "The company has implemented business transformation efforts, leading to recent margin improvement and significant debt reduction. Financial leverage is moderate and liquidity is very good, supported by our expectation that the company will maintain a net cash position and consistent, positive free cash flow generation. These factors will allow the company to weather near-to-intermediate term challenges as is further executes it plan."

The following ratings were assigned:

Assignments:

..Issuer: Fossil Group, Inc.

.... Corporate Family Rating, Assigned Ba3

.... Probability of Default Rating, Assigned Ba3-PD

.... Senior Secured Bank Credit Facility, Assigned Ba3 (LGD3)

.... Speculative Grade Liquidity Rating, Assigned SGL-1

Outlook Actions:

..Issuer: Fossil Group, Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

Fossil's Ba3 CFR reflects its position as one of the world's largest manufacturers and distributors of watches. The company has a broad portfolio of owned and licensed brands, which provide it with broad distribution across a wide range of retailers, and broad international reach, with the majority of its consolidated net sales generated outside the US. While Fossil has a high reliance on third party licensing sales, the company's demonstrated manufacturing, design and distribution capabilities provide a high likelihood of maintaining relationships with a broad range of sizeable lifestyle brand owners. The rating also takes into consideration the company's recent margin improvements stemming from significant cost savings actions, as well as its very good liquidity, and moderate financial leverage.

Fossil is constrained by its high reliance on watch products for the significant majority of sales, the highly discretionary product category and declining sales due to technological change. Over time, Moody's expects growth opportunities exist for Fossil, through increased scale in its connected business, international expansion and e-commerce. However, it will take some time for the connected business to gain the scale needed to offset the declining traditional watch business. While having a diverse portfolio of brands, the rating also considers Fossil's high reliance on certain licensed brands, such as Michael Kors, for sales.

The stable outlook balances the company's conservative financial policy, moderate leverage and very good liquidity with continued uncertainty around the depth and duration of traditional watch sales declines.

The Ba3 rating assigned to Fossil's proposed senior secured term loan reflects Moody's expectation that it will have a first priority lien on all capital stock of domestic subsidiaries, 65% of the voting stock of each first-tier foreign subsidiary, and substantially all assets of the borrowers and guarantors, except current asset collateral consisting of inventory, accounts receivable and cash, on which it will have a second lien behind an unrated $275 million asset based revolver. The term loan will be guaranteed by material domestic subsidiaries. The rating reflects the loan's junior position to priority accounts payable and the ABL's claim on the more liquid assets, offset by support provided by sizable junior claims such as leases and remaining accounts payable.

Ratings could be upgraded over time if the company resumes revenue growth and profit margin expansion while maintaining very good liquidity, conservative financial policies and credit metrics at or better than current levels.

Ratings could be downgraded if it appears that the company will be unable to stabilize revenue and earnings declines, or if liquidity were to materially erode.

Fossil Group, Inc. is a global design, marketing and distribution company that specializes in consumer lifestyle and fashion accessories. Principal offerings include an extensive line of men's and women's fashion watches, jewelry, handbags, small leather goods, and accessories sold under a diverse portfolio of proprietary and licensed brands. Revenue exceeded $2.5 billion in fiscal 2018.

The principal methodology used in these ratings was Apparel Companies published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Michael M. Zuccaro
Vice President - Senior 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

Janice Hofferber, CFA
MD - Corporate Finance
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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