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Rating Action:

Moody's downgrades Renfro's CFR to Caa3; negative outlook

13 Feb 2020

New York, February 13, 2020 -- Moody's Investors Service ("Moody's") downgraded Renfro Corporation's ("Renfro") corporate family rating ("CFR") to Caa3 from Caa1, probability of default rating to Caa3-PD from Caa1-PD, and first lien term loan rating to Caa3 from Caa1. The outlook remains negative.

With its secured revolving credit facility and secured term loan set to mature February 12, 2021 and March 31, 2021, respectively, the downgrades reflect the heightened risk that Renfro may not be able to address these upcoming maturities at par in a timely and economic manner. Liquidity is weak reflecting the upcoming maturities. In addition, given recent deterioration in operating performance and uncertain future improvement amid a highly promotional apparel environment, Renfro may not be able to support a material potential increase in interest rates that may be required to facilitate a refinancing transaction. Thus, the potential for a default, including a distressed exchange-type of restructuring, is high over the near term.

Moody's took the following rating actions for Renfro Corporation:

....Corporate family rating, downgraded to Caa3 from Caa1;

....Probability of default rating, downgraded to Caa3-PD from Caa1-PD

....Senior secured first lien tranche B term loan due 2021, downgraded to Caa3 (LGD4) from Caa1 (LGD4)

....Outlook, remains negative

RATINGS RATIONALE

Renfro's Caa3 CFR reflects the company's weak liquidity and risks regarding the company's ability to refinance its upcoming debt maturities, given its declining operating performance and high leverage. We expect that earnings declined significantly in FYE January 2020, likely resulting in Moody's-adjusted debt/EBITDA exceeding 6.8 times (equivalent to over 5.0 times based on credit agreement EBITDA and funded debt), as a result of the temporary disruption in its Fort Payne, AL manufacturing facility, the loss of certain retail programs, digital investments, and a challenging retail sell-through environment. While Renfro should be able to correct its manufacturing issues in FY 2021, the company's ability to return to earnings growth and solid positive free cash flow remains uncertain at a time when it needs to refinance maturing debt. The ratings also incorporate the company's significant customer concentration, narrow product focus, and modest scale. As an apparel manufacturer and designer, Renfro needs to make ongoing investments to sustain brand equity for its owned brands, as well as appropriate social and environmental practices with respect to the treatment of its work force, consumer data protection and product sourcing. With regard to financial strategy, in Moody's view the extended period of ownership (13 years) by private equity sponsor Kelso & Company, L.P. significantly reduces the likelihood of any sponsor equity support.

Supporting the rating are Renfro's well-recognized licensed brands, long-term customer relationships and the relatively stable nature of the socks business. The rating also incorporates the company's history of voluntary debt repayment with free cash flow.

The ratings could be downgraded if the company does not make material progress towards addressing upcoming maturities over the next couple of quarters. The ratings could also be downgraded if default risk increases as a result of other factors, including greater than anticipated deterioration in operating performance or liquidity, or if Moody's recovery rate estimates decline.

The ratings could be upgraded if the company successfully refinances its capital structure at par, and improves its overall liquidity to adequate levels.

The principal methodology used in these ratings was Apparel Methodology published in October 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Renfro Corporation ("Renfro"), based in Mount Airy, North Carolina, is a leading manufacturer and distributor of branded and private label socks. The company designs, manufactures, and distributes under exclusive licenses from third parties including Fruit of the Loom, Dr. Scholl's, Polo, Ralph Lauren, Carhartt, Russell, New Balance and Sperry; under owned brands including Hot Sox, KBell and Copper Sole; and brands produced under manufacturing agreements for Smartwool and Pearl Izumi. The company sources from Asia vendors and has manufacturing facilities in the US. Renfro has a significant customer concentration with Wal-Mart. Private equity firm Kelso & Company, L.P. has been the majority owner of Renfro since 2006. Revenues for the twelve months ending October 2019 were less than $500 million.

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.

Michael M. Zuccaro
VP-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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