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Rating Action:

Moody's downgrades Claire's PDR to Ca-PD due to exchange offer

16 Aug 2016

New York, August 16, 2016 -- Moody's Investors Service (Moody's") today downgraded the Probability of Default rating for Claire's Stores, Inc. ("Claire's") to Ca-PD from Caa3-PD, and downgraded various debt instruments as outlined below. The Caa3 Corporate Family rating and negative outlook are unaffected. These actions are in reaction to the company's announcement on August 12, 2016 of an exchange offer. We expect to upgrade the PDR to Caa3-PD/LD upon the closing of the exchange offer.

Downgrades:

..Issuer: Claire's Stores, Inc.

.... Probability of Default Rating, Downgraded to Ca-PD from Caa3-PD

....Senior Subordinated Regular Bond/Debenture, Downgraded to C(LGD6) from Ca(LGD6)

....Senior Secured Regular Bond/Debenture, Downgraded to C(LGD4) from Caa3(LGD4)

....Senior Unsecured Regular Bond/Debenture, Downgraded to C(LGD4) from Ca(LGD4)

RATINGS RATIONALE

"While the planned exchange offer, which impacts approximately $800 million of debt, and which we will consider a distressed exchange, will result in holders accepting around $571 million in 'haircuts', alleviates liquidity stress and reduces leverage, the company is still faced with acute operational and competitive challenges," stated Moody's Vice President Charlie O'Shea.

Claire's Caa3 Corporate Family Rating reflects its unsustainable capital structure at present operating performance levels, making further restructuring likely, especially given the relative size of the debt burden. The rating also reflects the company's very high leverage, weak interest coverage, and precarious liquidity, with the possibility that the revolver will be insufficient to fund operations over the next 12 months. Claire's debt to EBITDA was approximately 8.6 times and EBITA to interest expense was 0.8 times for the twelve months ended April 30, 2016. Moody's expects Claire's credit metrics will remain weak over the next twelve months even assuming the exchange is completed, with pro forma debt/EBITDA of around 7 times. Claire's earnings will remain flat off of its 2015 levels due to the increasingly competitive landscape, difficult mall traffic trends, and economic headwinds surrounding Europe (including FX volatility and terror threats). Conversely, Moody's expects residual positive momentum as Claire's continues to strategically shift its focus "off-mall" and expands the concession format, leverages wholesale opportunities, and grows e-commerce. Claire's Caa3 Corporate Family Rating is supported by its value positioned price points, international geographic presence, well-known brand name, and despite recent declines, its EBITDA margin remains high relative to its specialty peers. The negative outlook reflects our concerns that acute operational and competitive challenges will result in continued weak performance, with negative free cash flow likely to persist. Given the continued deterioration in operating performance and capital structure concerns, an upgrade of Claire's is unlikely over the near term. Ratings could be downgraded if Claire's operating performance, liquidity, and/or interest coverage deteriorate, or if the company's probability of default were to increase for any reason.

Claire's Stores, Inc., headquartered in Hoffman Estates, IL, is a specialty retailer of value-priced jewelry and fashion accessories for pre-teens and young adults in 44 countries in North America, Europe, the Middle East, Central America, and South America. It operates 2,876 stores and franchises 539 stores. Revenues are about $1.4 billion. Claire's is owned by Apollo.

The principal methodology used in these ratings was Retail Industry published in October 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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 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.

Charles O'Shea
VP - Senior Credit Officer
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 Hofferber, CFA
MD - Corporate Finance
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

No Related Data.
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