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Rating Action:

Moody's assigns first-time B3 rating to New Look Retail Group Limited; stable outlook

01 May 2013

(P)B1 rating assigned to proposed secured notes to be issued by New Look Bondco I plc

London, 01 May 2013 -- Moody's Investors Service has today assigned a first-time B3 corporate family rating (CFR) and B3-PD probability of default rating (PDR) to New Look Retail Group Limited (New Look), the ultimate holding company of the New Look group. Concurrently, Moody's has assigned a provisional (P)B1 rating, with a loss given default (LGD) assessment of LGD3, 32%, to the proposed GBP800 million worth of senior secured notes due 2018 to be issued by New Look Bondco I plc. The outlook on the ratings is stable.

The proceeds from the proposed notes will be used to (1) repay all of New Look's outstanding debt, which includes senior and mezzanine facilities; (2) repay a cash amount of existing payment-in-kind (PIK) loans in connection with a PIK exchange offer; and (3) pay fees and expenses associated with the proposed refinancing transactions.

"The B3 rating we assigned to New Look balances the company's exposure to fashion risk, the persistently weak environment in its core European markets and its high leverage with its good brand recognition in the value fashion category, international diversification and fast growing e-commerce platform," says Yasmina Serghini-Douvin, a Moody's Vice President - Senior Analyst and lead analyst for New Look.

Moody's issues provisional ratings in advance of the final sale of securities and these reflect Moody's credit opinion regarding the transaction only. Upon a conclusive review of the final documentation Moody's will endeavour to assign definitive ratings. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

--B3 CFR/B3-PD PDR--

The assigned B3 CFR primarily reflects New Look's exposure to fashion risk, even though it only has a moderate presence in the high fashion segment and it uses its flexible supply chain to replicate fashion trends more quickly, as well as the competitive and persistently weak environment in the company's core European markets, which pressure its like-for-like sales growth. Importantly, the rating is constrained by the company's high leverage -- defined as debt/EBITDA, after Moody's adjustments principally for capitalised operating leases -- which Moody's estimates to be in excess of 7.0x at the end of March 2013, pro forma for the proposed capital structure (including the PIK notes).

New Look's performance has suffered in recent years from subdued consumer demand and certain issues in connection to inconsistent ranging, product and quality, in the context of a relocation of its buyers team from Weymouth to London, which resulted in higher markdowns. However, the rating factors in that the company has implemented corrective actions, leading to an increase in its like-for-like sales (-0.8% in the 52 weeks to 22 December 2012 compared with -5.9% in the financial year ended 24 March 2012) and underlying operating profit margin (6.9% versus 4.3%).

The new B3 CFR also positively reflects New Look's position as one of the UK's leading apparel retailers, with the company benefiting from (1) good brand recognition in the value fashion category; (2) a degree of international diversification, especially across western Europe and the Middle East through both wholly owned stores and franchises; and (3) a fast growing e-commerce platform and improving operational performance on the back of the successful roll-out of its 'Concept store' refurbishment programme and the implementation of cost-saving initiatives.

Moody's considers that following the proposed refinancing transactions, New Look's liquidity profile will be satisfactory overall. It will be supported by expected positive free cash flow generation over the next 12 months and access to a covenanted GBP75 million revolving credit facility (RCF). This, together with New Look's cash balances, should be sufficient to cover the company's seasonal working capital requirements. Furthermore, the new RCF contains a leverage covenant defined as net indebtedness/company's-adjusted EBITDA, with the first covenant test set in 30 June 2014, under which the company is expected to have comfortable headroom.

--(P)B1 RATING ON SENIOR SECURED NOTES--

The (P)B1 (LGD3, 32%) assigned to New Look's senior secured notes due 2018 reflect their position as secured liabilities ranking ahead of a sizeable amount of PIK loans and junior only to a moderately sized super senior RCF. The secured notes are guaranteed by certain guarantor subsidiaries representing as at and for the 52 weeks to 22 December 2012 82.9%, 97.3% and 75.0% of the company's consolidated revenue, adjusted EBITDA and the assets of the restricted group, respectively. These notes will be secured by fixed and floating charges on a first-ranking basis over substantially all of the assets of the issuer and guarantor subsidiaries. However, in an enforcement scenario, the RCF would have priority rights on the proceeds from the collateral. Moreover, it will benefit from additional guarantees of certain French subsidiaries, and will be secured by assets of these entities.

In its assessment, Moody's has assumed that New Look will successfully execute its PIK exchange transaction, as a result of which the only PIK loans remaining will be within the restricted group and will mature after the RCF and secured notes.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook on the ratings reflects Moody's view that, as a result of management's focus on controlling costs and reduced markdowns, New Look's performance should continue to improve regardless of the still challenging European consumer environment. To maintain a stable outlook, New Look will need to generate positive free cash flow and to reduce its debt/EBITDA ratio below 7.0x, towards 6.5x.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's could upgrade the rating if New Look restores its margins with, for instance, a reported EBITDA margin in the mid-teens in percentage terms, which would support a reduction in adjusted debt/EBITDA below 6.0x.

Conversely, negative pressure could build if New Look fails to deleverage such that debt/EBITDA remains above 7.0x and EBITA/interest expense decreases below 1.0x . Concerns about the company's ability to generate positive free cash flow, to access its RCF or to maintain covenant headroom could also result in a downgrade.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was the Global Retail Industry 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 Weymouth, UK, New Look Retail Group Limited is a value fashion retailer selling a range of apparel, accessories and footwear primarily for women. The company had total revenue of GBP1.4 billion and operating profit of GBP 49.3 million in the financial year ended 24 March 2012.

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.

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.

Yasmina Serghini-Douvin
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
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Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
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SUBSCRIBERS: 44 20 7772 5454

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Moody's assigns first-time B3 rating to New Look Retail Group Limited; stable outlook
No Related Data.
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