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Rating Action:

Moody's downgrades Shoes for Crews' CFR to Caa1; outlook negative

30 Nov 2017

Approximately $280 million of rated debt affected

New York, November 30, 2017 -- Moody's Investors Service today downgraded SHO Holding I Corporation's (d.b.a. "Shoes for Crews") ratings, including its Corporate Family Rating to Caa1 from B3, Probability of Default Rating to Caa1-PD from B3-PD, and its first lien credit facilities to B3 from B2. The rating outlook was changed to negative from stable.

The downgrade reflects the company's weaker-than-expected operating performance that, when combined with high debt levels and negative free cash flow, has resulted in high leverage and a weakened liquidity position.

Shoes for Crews' sales growth has not met expectations largely due to weak customer acceptance of recent new product launches and marketing. When coupled with increased costs related to business investment, integration of Sure Grip and new product development, EBITDA has declined significantly. Meanwhile, increased capital spending and inventory build-up has led to negative free cash flow and meaningful revolver borrowing; driving Debt to EBITDA, as calculated by Moody's, to over 10x as of September 30, 2017. Liquidity is weak due to the company's negative free cash flow and tight covenant cushion. Given current revolver borrowing levels, there is very limited capacity for additional borrowing before the company would be required to comply with a first lien leverage covenant. While the company would have met this test at the end of September 2017, cushion was very modest, leaving little room for any adverse fluctuations in opearting performance or cash flow over the very near term.

The company is implementing a series of corrective actions aimed at improving product quality and marketing while improving profitability and free cash flow. However, these initiatives will likely take time to fully benefit operating performance.

Moody's took the following rating actions:

..Issuer: SHO Holding I Corporation

Downgrades:

.... Corporate Family Rating, downgraded to Caa1 from B3

.... Probability of Default Rating, downgraded to Caa1-PD from B3-PD

.... Senior Secured Bank Credit Facilities, downgraded to B3(LGD3) from B2(LGD3)

Outlook Actions:

....Outlook, changed to negative from stable

RATINGS RATIONALE

Shoes for Crews' Caa1 Corporate Family Rating reflects its high debt burden stemming primarily from the 2015 acquisition of a controlling stake the company by CCMP Capital Advisors, LLC ("CCMP"), 2016 acquisition of SureGrip Footwear and subsequent weakening operating performance reflected in declining profitability and negative free cash flow over the latest twelve month period. The rating also reflects the company's very small scale and narrow product focus on slip-resistant footwear for work environments, with a primary focus in the foodservice industry. Positive rating consideration is given to Shoes for Crews' history of stable operating performance with demonstrated resilience through economic cycles. Moody's believes this is largely a result of the recurring nature of technical footwear purchases caused by normal wear-and-tear, the company's long-standing customer relationships with low concentration, and established payroll deduction programs within its customer base that creates a barrier to entry due to the embedded technology within customer human resource systems.

The negative outlook reflects the risk that operation improvement efforts do not lead to improved performance or cash flow over the very near term, which could pressure liquidity and increase the company's probability of default.

A ratings downgrade could occur with further deterioration in performance or liquidity, such as continued negative free cash flow or covenant compliance issues, that leads to an increased probability of default, including a distressed exchange. Specific metrics include EBITA/Interest sustained below 1 time.

Given the company's very high leverage and negative ratings outlook, a ratings upgrade is unlikely in the near term. Over the longer term, ratings could be upgraded if the company were to improve profitability, resulting in Debt/EBITDA maintained below 7.0 times and EBIT/interest above 1.25 times. An upgrade would also require the company maintain at least an adequate liquidity profile, with positive free cash flow generation and ample covenant cushion.

SHO Holding I Corporation, which does business as "Shoes for Crews," designs, markets and manufactures slip-resistant footwear in the United States and certain European countries. Revenue for the twelve month period ended September 2017 exceeded $190 million. The company is headquartered in West Palm Beach, FL.

The principal methodology used in these ratings was Global Apparel Companies published in May 2013. 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 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: 1 212 553 0376
Client Service: 1 212 553 1653

Janice Hofferber, CFA
MD - Corporate Finance
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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