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Global Credit Research - 16 Dec 2010
New York, December 16, 2010 -- Moody's Investors Service today upgraded Claire's Stores,
Inc.'s ratings, including its Corporate Family Rating
and Probability of Default Rating, to Caa2 from Caa3. The
Speculative Grade Liquidity rating of SGL-3 was affirmed.
The rating outlook was also revised to positive from stable.
The upgrade reflects a decrease in Claire's probability of default
given that the company can now fully cover its interest expense.
This is due to earnings improvement from solid comparable store sales
growth, improved merchandise margins, and continued expense
discipline. For the twelve months ending October 30, 2010
Claire's EBITA to interest expense was 1.0 time which Moody's
believes is sustainable.
Claire's Caa2 Probability of Default Rating reflects Moody's
view that although Claire's credit metrics have improved,
they remain very weak as a result of its heavy debt load. For the
twelve months ending October 30, 2010, Claire's debt
to EBITDA was very high at 9.3 times. However the rating
reflects that Claire's earnings can fully cover its interest expense
even after it loses its ability to defer paying cash interest on its $350
senior unsecured notes in June 2011. The rating is also supported
by Claire's adequate liquidity, lack of near dated debt maturities,
and ability to self fund growth capital expenditures. Claire's
has several strong qualitative factors including its value positioned
price points, international geographic presence, well known
brand name, and high margins relative to specialty retail peers.
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.
The following ratings were upgraded and LGD point estimates changed:
Corporate Family Rating to Caa2 from Caa3
Probability of Default Rating to Caa2 from Caa3
$200 million senior secured revolving credit facility to Caa1 (LGD
3, 34% from Caa2 (LGD 3, 33%)
$1,450 million senior secured term loan to Caa1 (LGD 3,
34%) from Caa2 (LGD3, 33%)
Senior unsecured notes to Caa3 (LGD 4, 67%) from Ca (LGD
The following ratings are affirmed:
Senior subordinated notes at Ca (LGD 6, 94%)
Speculative Grade Liquidity rating at SGL-3
The last rating action on Claire's Stores, Inc. was
on December 18, 2009 when its Speculative Grade Liquidity rating
was upgraded to SGL-3 from SGL-4 and its Probability of
Default Rating was affirmed at Caa3 with a stable outlook.
Ratings could be upgraded should Claire's operating performance
improve 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.
In addition, an upgrade would require Claire's to maintain
Ratings 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.
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
and EMEA 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 2,971 stores and franchises
398 stores in North America and Europe. Revenues are about $1.4
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 maintaining
a credit rating.
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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
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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
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Please see the ratings disclosure page on our website www.moodys.com
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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
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Claire's PDR to Caa2, outlook positive
250 Greenwich Street
New York, NY 10007
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