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