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Rating Action:

Moody's upgrades G-III Apparel's secured term loan to Ba3; Ba3 CFR affirmed

25 Sep 2018

New York, September 25, 2018 -- Moody's Investors Service ("Moody's") has today upgraded G-III Apparel Group, Ltd.'s ("G-III") Senior Secured Term Loan to Ba3 from B1, and its Speculative Grade Liquidity rating to SGL-2 from SGL-3. At the same time, Moody's affirmed the company's Ba3 Corporate Family Rating (CFR) and Ba3-PD Probability of Default Rating (PDR). The ratings outlook is stable.

The Term Loan and SGL upgrades both reflect the reduced reliance on its more senior Asset-Based Revolving Credit Facility (not rated by Moody's) as a result of improved performance, free cash flow and debt reduction. The company has significantly paid down borrowings used to fund the 2016 acquisition of Donna Karan, thus, has reduced overall peak borrowings under the facility. The affirmation of the Ba3 CFR reflects the continued solid performance and credit metrics since the acquisition of Donna Karan International, Inc. in December 2016.

Upgrades:

..Issuer: G-III Apparel Group, Ltd.

....Senior Secured Term Loan, Upgraded to Ba3 (LGD4) from B1 (LGD4)

.Speculative Grade Liquidity Rating to SGL-2 from SGL-3

Affirmations:

..Issuer: G-III Apparel Group, Ltd.

.... Probability of Default Rating, Affirmed Ba3-PD

.... Corporate Family Rating, Affirmed Ba3

Outlook Actions:

..Issuer: G-III Apparel Group, Ltd.

....Outlook, Remains Stable

RATINGS RATIONALE

G-III's Ba3 Corporate Family Rating reflects its solid market position, well-known brands, broad product offering and track record of growth, both organically and through new licenses and acquisitions. The December 2016 acquisition of Donna Karan expanded the company's portfolio of owned brands and provides potential profitable growth opportunities. Leverage, as measured by lease-adjusted debt-to-EBITDAR, stood at 2.7x as of July 31, 2018, having improved significantly since the acquisition due to both earnings growth and debt reduction. Liquidity is good, supported by the expectation that balance sheet cash, cash flow and excess revolver capacity will cover highly seasonal working capital needs and capital expenditures over the next twelve months.

G-III's credit profile is constrained by the company's ongoing reliance on licensed brands for more half of its sales, and the relatively short terms of contracts within the licensed portfolio. Calvin Klein, its largest licensed brand and longest current contract, expires in five years. In addition, as an apparel wholesaler/retailer, G-III's business risk is high due to the potential for performance volatility related to fashion risk or changes in consumer spending, significant wholesale customer concentration, or, more recently, increased tariffs on products sourced from China and sold into the United States. Execution risk is also high as the company works to sustainably improve its Bass and Wilson's retail businesses while further integrating Donna Karan business, all in a very challenging industry environment.

The ratings could be upgraded over time if the company sustainably expands revenue and EBITA margins, and maintains conservative financial policies. Quantitatively, an upgrade would require average lease-adjusted debt/EBITDA sustained below 3.5 times and EBITA/interest expense above 3.5 times.

The ratings could be downgraded if operating performance materially declines, if liquidity were to deteriorate through increased revolver borrowing or negative free cash flow, or if financial policy became more aggressive, such as through large debt-financed acquisitions. Failure to renew major licenses or sustainably reduce leverage ahead of major license expirations could also lead to a ratings downgrade. Specific metrics include average lease-adjusted debt/EBITDA sustained above 4.5 times or EBITA/interest expense below 2.5 times.

G-III designs, sources and markets apparel and accessories under owned, licensed and private label brands. G-III's owned brands include DKNY, Donna Karan, Vilebrequin, G. H. Bass, Andrew Marc, Marc New York, Eliza J and Jessica Howard. G-III has fashion licenses under the Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris, Kenneth Cole, Cole Haan, Guess?, Vince Camuto, Levi's and Dockers brands among others. The company also operates retail stores under the DKNY, Wilsons Leather, G. H. Bass, Vilebrequin, Calvin Klein Performance and Karl Lagerfeld Paris names. Revenue for the twelve month period ended July 31, 2018 approached $3 billion.

The principal methodology used in these ratings was Apparel Companies published in December 2017. 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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