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Related Issuers
Rating Action:

Moody's changes Cole Haan's outlook to negative from stable; affirms ratings

27 Mar 2020

New York, March 27, 2020 -- Moody's Investors Service (Moody's) changed Calceus Acquisition, Inc.'s (Cole Haan) ratings outlook to negative from stable. Concurrently, Moody's affirmed the company's B1 corporate family rating (CFR), B1-PD probability of default rating (PDR), and B1 senior secured term loan rating.

The change in outlook to negative from stable reflects the risk that credit metrics could weaken for a prolonged period as a result of lower discretionary consumer spending and high promotional activity in the apparel and footwear sector as a result of the COVID-19 outbreak. The negative outlook also reflects the risk that liquidity will decline more than anticipated as a result of an extended period of store closures or weaker than expected earnings.

Moody's projects a significant decline in revenues and EBITDA in calendar year 2020 including the impact of temporary store closures, followed by a moderate recovery in 2021. Moody's views Cole Haan's liquidity as adequate and believes the company can withstand a short period of store closures at its operated stores and retail partners and significant promotional activity. Cole Haan had $11 million of cash and full availability under its $115 million asset-based revolving credit facility as of November 30, 2019.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The retail sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Cole Haan's credit profile, including its exposure to discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Cole Haan remains vulnerable to the outbreak continuing to spread. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Cole Haan of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

..Issuer: Calceus Acquisition, Inc.

.Corporate family rating, affirmed B1

.... Probability of default rating, affirmed B1-PD

.$290 million senior secured term loan, affirmed B1 (LGD4)

.Outlook, changed to negative from stable

RATINGS RATIONALE

Cole Haan's B1 CFR reflects its high leverage and exposure to discretionary consumer spending as a premium price point retailer. While Moody's expects that temporary closures at its stores and retail partner locations will result in sharp earnings declines in Q4 FY 2020, followed by continued but decelerating declines through Q2 FY 2021, Cole Haan's strong momentum prior to the COVID-19 outbreak will likely position it better than other apparel and footwear companies in an economic downturn. Moody's expects EBITDA to decline by 40-60% in FYE May 2020 from the LTM period ended November 30, 2019. As a result, Moody's projects that debt/EBITDA will increase to about 4.8 times from 3.3 times (as of November 30, 2019) and EBITA/interest expense will decline to about 1.1 times from 2.8 times. Credit metrics should improve modestly in FYE May 2021, as the company anniversaries sharp Q4 FY 2020 declines but is impacted by lower demand in the first half. Cole Haan's relatively small scale and operations in the highly competitive footwear market also constrain the rating. In addition, the rating incorporates financial strategy risk associated with private equity ownership. As a mono-brand premium retailer, Cole Haan is also exposed to changes in fashion trends and consumers' brand perception. Continued reinvestment in product design, marketing and infrastructure, as well as social factors including responsible sourcing and robust data protection, are necessary to sustain brand value.

Nevertheless, the rating is supported by Cole Haan's strong product and digital execution, well-recognized brand and diverse distribution channels, including a sizeable digital business. While the ongoing 'athleisure' fashion trend has been a significant driver of the company's growth, Cole Haan offers a broad range of styles that can adapt to changing trends. The ratings are also supported by the company's adequate liquidity.

The ratings could be downgraded if earnings or liquidity deteriorate, if product weakness or operational execution hurt revenue or the brand, or if leverage increases including as a result of debt-financed dividend distributions or acquisitions. Quantitatively, the ratings could be downgraded if debt/EBITDA is sustained above 4.0 times and EBITA/interest expense declines below 2.25 times.

The ratings could be upgraded if the company materially reduces private equity ownership and demonstrates a commitment to a more conservative financial policy. An upgrade would also require increased scale and diversification, while maintaining solid revenue and earnings growth and very good liquidity. Quantitatively, the ratings could be upgraded if Moody's-adjusted debt/EBITDA is maintained under 3 times and EBITA/interest expense approaches 3 times.

The principal methodology used in these ratings was Retail Industry published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Greenland, NH, Cole Haan is a designer and retailer of men's and women's footwear, handbags, and accessories. Net revenues for twelve months ended 30 November 2019 were approximately $738 million. Apax Partners and the company's management team acquired the company from NIKE Inc. in early 2013.

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.

Raya Sokolyanska
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

Margaret Taylor
Associate Managing Director
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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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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