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Rating Action:

Moody's downgrades Nine West's CFR to Caa2; outlook negative

26 Aug 2016

Approximately $1.4 billion rated debt affected

New York, August 26, 2016 -- Moody's Investors Service today downgraded Nine West Holdings, Inc.'s ("Nine West") Corporate Family Rating to Caa2 from Caa1, Probability of Default Rating to Caa2-PD from Caa1-PD, Senior Secured Bank Credit Facility to B3 from B1, and Senior Unsecured Bank Credit Facility to Caa2 from Caa1. Moody's affirmed the company's other Senior Unsecured debt at Caa3. The rating outlook is negative.

The downgrade results from ongoing declines in Nine West's revenue and earnings, with EBITDA (as defined by the company) falling further to $52 million for the LTM period ending July 2, 2016, which compares to EBITDA of $90 million in fiscal 2015. Balance sheet leverage (calculated using unadjusted debt and company EBITDA) exceeded 28 times for the twelve month period ended July 2, 2016. At this level of performance, the company's capital structure is unsustainable. Thus, the company faces a heightened probability of default, including the potential for a distressed exchange.

Nine West has taken corrective actions to improve profitability, such as closing underperforming stores, reducing administrative, real estate and other expenses and improving product quality. However, Moody's expects improvement will take time as challenges still persist within the company's moderate department store customer base and as well as its own retail business.

Despite the very high leverage, Nine West's liquidity remains adequate. At current performance levels, Moody's expects slightly negative free cash flow after capital expenditures. Expected benefits from recent cost savings initiatives and cash inflows from working capital should provide some offset to weak earnings over the near term. Availability under the company's revolver is expected to remain sufficient to fund operations, including seasonal working capital needs and interest expense, over the next twelve months. Availability was recently bolstered by the elimination of the springing fixed charge covenant under the agreement.

Moody's took the following rating actions:

Issuer: Nine West Holdings, Inc.

.... Corporate Family Rating, Downgraded to Caa2 from Caa1

.... Probability of Default Rating, Downgraded to Caa2-PD from Caa1-PD

.... Senior Secured Bank Credit Facility due 2019, Downgraded to B3 (LGD2) from B1 (LGD2)

.... Senior Unsecured Bank Credit Facility due 2020, Downgraded to Caa2 (LGD4) from Caa1 (LGD4)

.... 8.25% Senior Unsecured Notes due 2019, Affirmed at Caa3 (LGD5)

.... Outlook changed to Negative

Issuer: Jones Group Inc. (The)

.... 6.875% Senior Unsecured Notes due 2019, Affirmed at Caa3 (LGD5)

.... 6.125% Senior Unsecured Bonds due 2034, Affirmed at Caa3 (LGD5)

RATINGS RATIONALE

Nine West's Caa2 Corporate Family Rating reflects the company's weak operating performance and very high debt burden, with unadjusted debt to EBITDA in excess of 28 times. At current performance levels, the company's capital structure is unsustainable and its probability of default, including the potential for a distressed exchange, is high. The rating also reflects the company's high exposure to the challenged moderate price department store sector which we believe will make revenue growth difficult. The company's retail business, which account for a meaningful portion of revenues, have seen negative trends for a number of years and has yet to demonstrate revenue and earnings stability. Recent actions to reduce operating expenses should to partly offset these challenges. The rating also considers that the company's liquidity remains adequate, with no significant debt maturities until 2019 and sufficient capacity under its revolving credit facility to fund operations and to meet seasonal working capital needs.

The negative rating outlook reflects the heightened risk of default if operations do not materially improve. Ratings could be lowered if the company's liquidity position were erode for any reason, or the company's probability of default were to otherwise increase. Ratings could be upgraded if the company makes sustained progress improving operating performance such that leverage began to approach more sustainable leverage levels and its probability of default decreases. Quantitatively ratings could be upgraded if interest coverage improved to around 1.0 time and debt/EBITDA fell below 8 times while maintaining a good liquidity profile.

Headquartered in New York, NY, Nine West Holdings is the surviving corporation following the April 2014 acquisition of The Jones Group, Inc. by affiliates of Sycamore Partners. Nine West has revenue approaching $1.7 billion. Its most significant brands include Nine West, Gloria Vanderbilt, L.e.i, and Easy Spirit.

The principal methodology used in these ratings was Global Apparel Companies published in May 2013. 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.

Michael M. Zuccaro
Asst Vice President - Analyst
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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​
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