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Global Credit Research - 16 Feb 2011
New York, February 16, 2011 -- Moody's Investors Service today assigned a Caa3 rating to Claire's
Stores, Inc. proposed $400 million senior secured
second lien notes. The company's, Caa2 Corporate Family
Rating, Caa1 bank credit facilities, Caa3 senior unsecured
notes, Ca senior subordinated note , and SGL-3 Speculative
Grade Liquidity rating were affirmed. The rating outlook is positive.
Proceeds from the proposed senior secured second lien notes will be used
to repay in full the $194 million drawn under Claire's $200
million revolving credit facility expiring in May 2013 and to refinance
$196 million of the company's $1.4 billion
term loan B due in May 2014.
Claire's Caa2 CFR considers Moody's view that that despite
the company's adequate liquidity and ability to self fund growth capital
expenditures, unless earnings significantly improve it's leverage
could hover at between 8 and 9 times during the next twelve to eighteen
months . This could make it difficult for the company to refinance
it remaining $1.2 billion term loan that matures in May
2014, or refinance on favorable terms. Additionally,
any refinancing could result in higher annual interest costs and more
restrictive financial covenants. Claire's low cost of debt
capital is currently an important component of the company's ability to
fully cover its interest expense and to generate modestly positive free
cash flow. The company is not currently subjected to any restrictive
financial covenants .
The ratings are supported by Claire's strong qualitative factors
including its value positioned price points, international geographic
presence, well known brand name, and high margins relative
to specialty retail peers. Additionally, the proposed transaction
-- assuming it closes as planned -- will eliminate
all of Claire's outstanding debt maturities through 2013 and reduce
the amount of debt maturing in 2014 to $1.2 billion.
In addition, Claire's liquidity will be bolstered by having
a fully available and undrawn revolving credit facility.
If the transaction is completed as planned, Moody's expects
that Claire's bank facilities will be upgraded to B3 to reflect
the reduced amount of senior secured first lien bank debt in the capital
structure and the additional support provided by the new senior secured
second lien notes. Additionally, Moody's expects that
Claire's Speculative Grade Liquidity rating will also be raised,
to SGL-2. This would reflect the full pay down of the company's
revolving credit facility along Moody's expectation that the company
would maintain significant availability under its revolver during the
next 12 to 18 months. The successful completion of the transaction,
however, would not change in Claire's CFR, PDR,
senior unsecured and subordinated note ratings.
The proposed $400 million senior secured second lien notes will
be initially offered by a wholly-owned escrow corporation subsidiary
called Claire's Escrow Corporation that will merge into Claire's
upon the delivery of Claire's year-end financial statements.
The year-end financial statements are required so that Claire's
can meet the debt incurrence covenant in its bank credit agreement,
a condition that has to be met for the company to move ahead with the
The positive outlook reflects Moody's view that Claire's sales
and earnings will improve, which could lead to a higher rating over
time. Claire's can self fund new store openings which will
drive earnings growth as will its value price points which continue to
resonate with consumers. The positive outlook also reflects Moody's
view that Claire's current expense discipline will continue.
Claire's CFR could be upgraded if Claire's operating performance
improves to levels such that a refinancing of its debt maturities is likely
and the company could fully cover its interest expense even if interest
expense were to increase. Quantitatively, EBITA to interest
expense would need to remain meaningfully above 1.0 time.
Claire's CFR could be downgraded should operating performance or
liquidity deteriorate, interest coverage weaken, or if for
any reason the overall probability of default were to increase.
Rating assigned and subject to review of final documentation:
$400 million senior secured second lien notes due 2019 at Caa3
(LGD 4, 63%)
Corporate Family Rating at Caa2
Probability of Default Rating at Caa2
Senior secured revolver expiring 2013 at Caa1 (LGD 3, 34%)
Senior secured term loan B due 2014 at Caa1 (LGD 3, 34%)
Senior unsecured notes due 2015 at Caa3 (LGD 4, 67%)
Senior subordinated notes due 2017 at Ca (LGD 6, 94%)
Speculative Grade Liquidity rating at SGL-3
The last rating action on Claire's Stores, Inc. was
on December 16, 2010 when its Corporate Family Rating and Probability
of Default Rating were upgraded to Caa2 from Caa3 with a positive outlook.
The principal methodologies used in this rating were Global Retail Industry
published in December 2006, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
published in June 2009.
Claire's Stores, Inc., headquartered in Hoffman
Estates, IL is the leading specialty retailer of value-priced
jewelry and fashion accessories for pre-teens, teenagers,
and young adults. It operates 2,981 stores and franchises
395 stores in North America and Europe. Annual revenues are about
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates Claire's second lien notes Caa3; Caa2 CFR affirmed
250 Greenwich Street
New York, NY 10007
No Related Data.
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