New York, February 04, 2011 -- Moody's Investors Service today affirmed Yankee Candle Company,
Inc.'s (Yankee Candle) B2 Corporate Family Rating,
and assigned a Caa1 rating to the proposed $315 million notes (Notes)
due 2016 to be co-issued by YCC Holdings, LLC (YCC Holdings)
and its finance subsidiary, YCC Finance, Inc. Moody's
also upgraded Yankee Candle's existing debt, but its Speculative
Grade Liquidity Rating was lowered to SGL-3 from SGL-2.
The rating outlook is stable.
The Corporate Family, Probability of Default and Speculative Grade
Liquidity Ratings were moved to YCC Holdings from Yankee Candle Company,
Inc.
Proceeds from the Notes will be used to fund a distribution to the equity
sponsor, Madison Dearborn Partners LLC. The Notes will not
be guaranteed by any entity in the corporate group. The company
is required to pay interest in cash. However, under certain
circumstances, it will have the option to pay certain percentages
of interest in kind.
RATINGS RATIONALE
YCC Holdings' B2 Corporate Family Rating reflects its high financial
leverage, with pro forma debt/EBITDA estimated to exceed 6.5
times for the year ended January 1, 2011. There is no cushion
for incremental term debt increases at this time. The rating also
reflects the company's limited overall scale in the retail industry and
its narrow product focus on the premium scented candle category.
The company benefits from its market leading position in its chosen markets
and its breadth of distribution across its own retail business and sizable
wholesale business. The company has demonstrable brand strength
evident in its very high operating margins which compare favorably to
best-in-class consumer product companies, and has
shown some resiliency during recent weak economic conditions.
The upgrade of the senior secured credit facility, senior notes
and subordinated notes reflect the increase in debt cushion in the capital
structure as a result of the proposed issuance of structurally subordinated
holdco debt.
The downgrade to SGL-3 reflects the expectation for lower excess
revolver availability due to increased borrowing for working capital growth
and higher cash interest payments as a result of the proposed debt offering.
Nevertheless, liquidity is expected to remain adequate over the
next twelve months. Yankee Candle's free cash flow is positive,
yet highly seasonal, with substantially all free cash flow typically
generated in the fourth quarter. When combined with availability
under its $125 million revolving credit facility, the company
is expected to adequately cover seasonal working capital requirements
and cash interest payments over the next twelve months. The company
is also expected to comfortably comply with the maximum leverage covenant
in its credit facilities over this timeframe.
The stable rating outlook reflects our expectation that the company will
be able to maintain top-line and operating margin stability,
while at the same time maintaining its focus on cash generation and debt
repayment.
Factors that could result in an upgrade include sustained growth in revenues
and operating earnings, significant debt reduction and maintenance
of financial policies that sustainably support lower leverage.
Quantitatively, ratings could be upgraded if debt/EBITDA was sustained
near 5.5 times and EBITA/interest maintained above 1.75
times. An upgrade would also require good liquidity, with
an extension of its maturity profile along with expanded excess revolver
availability.
The company's ratings could be downgraded if it experiences negative
trends in sales and operating margins that caused credit metrics or liquidity
to erode. Specific metrics include debt/EBITDA sustained above
6.5 times or EBITA/interest below 1.3 times.
Moody's took the following rating actions for YCC Holdings, LLC:
-- Corporate Family Rating assigned at B2;
-- Probability of Default Rating assigned at B2;
-- Speculative Grade Liquidity Ratings assigned at SGL-3;
-- $315 million senior subordinated notes due 2016
assigned at Caa1 (LGD6, 90%).
The ratings outlook is stable
Moody's took the following rating actions for Yankee Candle Company,
Inc.:
-- Secured revolving credit facility due 2013 upgraded to
Ba2 (LGD2, 15%) from Ba3 (LGD2, 23%);
-- Senior secured term loan due 2014 upgraded to Ba2 (LGD2,
15%) from Ba3 (LGD2, 23%);
-- Senior notes due 2015 upgraded to B2 (LGD4, 54%)
from B3 (LGD5, 72%);
-- Senior subordinated notes due 2017 upgraded to B3 (LGD5,
76%) from Caa1 (LGD6, 92%)
-- Corporate Family Rating withdrawn at B2;
-- Probability of Default Rating withdrawn at B2;
-- Speculative Grade Liquidity Ratings withdrawn at SGL-2;
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 South Deerfield, Massachusetts, Yankee Candle
Company is the largest designer, manufacturer, and distributor
of premium scented candles in the U.S. Revenues for the
company's revenue for last twelve months ended October 2, 2010 were
$716 million.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics 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.
New York
Michael M. Zuccaro
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Caa1 rating to YCC Holdings' proposed Notes; Yankee Candle's B2 CFR affirmed; outlook stable