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Rating Action:

Moody's downgrades Lifetime Brands' CFR to B2; outlook negative

25 Mar 2020

New York, March 25, 2020 -- Moody's Investors Service, ("Moody's") downgraded Lifetime Brands, Inc.'s (Lifetime Brands) Corporate Family Rating (CFR) to B2 from B1, Probability of Default Rating (PDR) to B2-PD from B1-PD, and senior secured term loan rating to B3 from B2. At the same time Moody's lowered the company's Speculative Grade Liquidity to SGL-3 from SGL-2. The outlook is negative.

Today's ratings downgrade reflects Lifetime Brands' high financial leverage with debt/EBITDA at around 5.8x for the fiscal year-end period December 31, 2019, and Moody's expectation that headwinds stemming from the coronavirus outbreak will keep leverage elevated over the next 12-18 months. The kitchenware product category should partially benefit from a stay at home environment and increased in-home meal preparation. However Lifetime Brands' customer temporary store closures and reduced operating hours, along with increased unemployment and lower consumer confidence as a result of the coronavirus outbreak, will negatively affect demand for the company's products. Many of Lifetime Brands' products are discretionary in nature and subject to competition from private label and lower priced offerings, and will be negatively affected by reduced consumer spending.

Downgrades:

..Issuer: Lifetime Brands, Inc.

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD

.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2

.... Corporate Family Rating, Downgraded to B2 from B1

....Senior Secured Bank Credit Facility, Downgraded to B3 (LGD4) from B2 (LGD4)

Outlook Actions:

..Issuer: Lifetime Brands, Inc.

....Outlook, Remains Negative

RATINGS RATIONALE

Lifetime Brands' B2 CFR broadly reflects its relatively small scale with annual revenue under $1.0 billion, and its weak credit metrics profile with elevated debt/EBITDA leverage at around 5.8x at fiscal year-end December 31, 2019. The company's products are discretionary in nature and susceptible to consumer spending, and the deteriorating operating environment because of the coronavirus outbreak will negatively impact demand. As a result, Moody's projects Lifetime Brands' debt/EBITDA leverage will increase to over 6.0x and that free cash flow will be modest at around $10 million in fiscal 2020. The rating also reflects Lifetime Brands' relatively low mid-single digits operating profit margins, its geographic and customer concentration, and the mature and highly competitive nature of the kitchenware product category. The company sources its products mostly from China, exposing the company's supply chain to manufacturing issues affecting the region such as the coronavirus outbreak. Production at the company's suppliers has improved following earlier coronavirus-related cutbacks, but supply chain risks remain.

The rating also considers the company's strong market position in the homewares industry with many leading brands in narrowly defined product categories, and its good brand and product diversification. Lifetime Brands' well-diversified retail distribution channel, which includes e-commerce, positions the company well to benefit from the continued shift of consumer spending to online.

Moody's downgraded the speculative-grade liquidity rating to SGL-3 from SGL-2 because of the expected decline in earnings and free cash flow. Lifetime Brands has adequate liquidity characterized by $11.3 million of cash as of December 31, 2019 and Moody's expectation for modest free cash flow of around $10 million in fiscal 2020, and by the company's access to a $150 million ABL revolving facility ($32.8 million drawn as of December 31, 2019) expiring in March 2023. The revolver capacity and the modest $2.75 million of required annual term loan amortization provide financial flexibility to fund working capital needs over the next 12-18 months. Aside from term loan amortization, there are no other material debt maturities until the revolver expires.

Governance factors include the company's reasonably conservative 3.0x net debt-to-EBITDA target (based on the company's calculation). However, the company has been well above this target for several years, limiting its flexibility to fund investments or acquisitions.

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 consumer durables 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 Lifetime Brands' credit profile, including its exposure to the US have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Lifetime Brands 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 Lifetime Brands of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

The negative outlook reflects Lifetime Brands' already high leverage and modest free cash flow generation, and the uncertainty regarding the impact of adverse economic conditions to consumer spending and to the company's operating results.

Ratings could be downgraded if Lifetime Brands' operating performance deteriorates such that debt/EBITDA leverage is expected to remain above 6.0x or free cash flow is expected to be weak. Additional factors that could lead to a downgrade include a deterioration of liquidity, or if the company's financial policies become more aggressive, in particular regarding a material debt-funded acquisition or shareholder returns.

Ratings could be upgraded if Lifetime Brands' operating results improve driven by organic revenue growth with a stable to higher EBITDA margin. Debt/EBITDA sustained below 5.0x and a significant improvement in free cash flow would also be necessary for an upgrade.

Lifetime Brands, Inc. designs, sources and sells branded kitchenware, tableware and other products used in the home. Lifetime Brands is publicly traded, with annual revenue of approximately $735 million for the fiscal year end period December 31, 2019.

The principal methodology used in these ratings was Consumer Durables Industry published in April 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.

Oliver Alcantara
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

John E. Puchalla, CFA
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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