Approximately $400 million rated debt affected
New York, March 17, 2015 -- Moody's Investors Service upgraded Kate Spade & Company's ("Kate
Spade") Corporate Family and Probability of Default Ratings to B1
from B2, and to B1-PD from B2-PD, respectively.
Concurrently, Moody's upgraded the company's senior secured term
loan rating to B1 from B2. The Speculative Grade Liquidity rating
of SGL-1 was affirmed. The ratings outlook is stable.
The upgrade reflects Kate Spade's strong performance and improved
credit metrics over the past year, including debt/EBITDA of 5.2
times and EBITA/interest expense of 2.3 times (Moody's adjusted,
as of January 3, 2015). The company's robust organic
earnings growth in 2014 resulted from continued market share gains,
the addition of new product categories, and increased focus on the
core business following the Lucky Brand and Juicy Couture divestitures.
Moody's expects the company to maintain positive earnings momentum
in the near term, supported by operating leverage in its international
segment, same store sales growth, store openings, and
exiting the Kate Spade Saturday brand and Jack Spade stores.
Issuer: Kate Spade & Company
- Corporate Family Rating, upgraded to B1 from B2
- Probability of Default Rating, upgraded to B1-PD
from B2-PD
-- $400 million Senior Secured Term Loan due 2021,
upgraded to B1 (LGD 3) from B2 (LGD 4)
- Speculative Grade Liquidity, affirmed at SGL-1
- Stable outlook
RATINGS RATIONALE
Kate Spade's B1 Corporate Family Rating reflects the brand's strong
organic growth over the past several years, as well as credible
opportunities for continued product and geographic expansion. Moody's
expects the company's moderately high leverage to decline to the
mid-4 times range and interest coverage to reach around 3 times
at year-end 2015. Moody's also has a positive view
of the company's financial strategies, which emphasize investment
in the business and growth via asset-light geographic expansion,
over acquisitions and capital return to shareholders. Kate Spade's
very good liquidity profile, primarily driven by high cash balances
derived from recent asset sales, and access to a substantially undrawn
asset-based revolver, also supports the rating. These
factors are mitigated by the high fashion risk and vulnerability to changes
in consumer sentiment inherent in the luxury goods industry. Further,
the company is essentially a mono-brand player that continues to
rely on the handbag and small leather goods category for the majority
of its earnings.
The stable rating outlook reflects Moody's expectation for continued
near-term earnings growth, driven by mid- to high-single-digit
revenue growth and margin expansion, and very good liquidity.
Ratings could be upgraded if:
• The company continues to gain share while maintaining EBITDA margins
• Further diversifies its product range and geographic presence
• Maintains a very good overall liquidity profile and conservative
financial policies
• Quantitatively, debt/EBITDA approaches 4.25 times
and interest coverage approaches 3.25 times
Ratings could be downgraded if:
• Revenue growth stalls and operating margins decline, indicating
the brand is losing resonance with its core customer
• Quantitatively, debt/EBITDA is sustained above 5.25
times or interest coverage falls below 2.25 times.
Headquartered in New York, NY, Kate Spade & Company is
a designer and marketer of luxury handbags, accessories and other
products primarily under the kate spade new york and Jack Spade brands.
The company sells its products through specialty stores, high-end
department stores, outlets, concessions and websites in the
U.S., Asia and Europe. Revenues for the year
ended January 3, 2015 were approximately $1.1 billion.
The principal methodology used in these ratings was Global Retail Industry
published in June 2011. Other methodologies used include Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA published in June 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Raya Sokolyanska
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades Kate Spade's CFR to B1