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Rating Action:

Moody's upgrades New Look to Caa1 after restructuring; stable outlook

11 Jun 2019

NOTE: On September 19, 2019, the press release was corrected as follows: The following was added to the beginning of the third paragraph of the REGULATORY DISCLOSURES section: “With reference to the withdrawal of the ratings of New Look Retail Group Limited: ” Revised release follows.

NOTE: On September 12, 2019, the press release was corrected as follows: The following sentence was added as the third paragraph of the REGULATORY DISCLOSURES section: “The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.” Revised release follows.

London, 11 June 2019 -- Moody's Investors Service has effectively upgraded New Look's rating to Caa1 from Caa2 after completion of its financial restructuring plan. The outlook is stable.

"New Look's management team will now have the flexibility it needs to deliver on its business plan, with the recent restructuring likely to significantly shrink leverage to 7.2x and 6.4x in 2020 and 2021 from 12.3x in 2018," says Roberto Pozzi, a Moody's Senior Vice President and lead analyst for New Look.

In a detailed breakdown of the rating action, Moody's assigned a Caa1 corporate family rating (CFR) and Caa1-PD probability of default rating (PDR) to New Look Retail Holdings Limited (New Look), the new parent company of the group, after withdrawing the Caa2 CFR and Caa2-PD (on review for upgrade) ratings at New Look Retail Group Limited following the restructuring.

This action concludes the review for upgrade initiated on 10 May 2019. The rating action follows a review of New Look's business plan, new capital structure following closing of the financial restructuring plan in May 2019, financial policies and liquidity profile.

Concurrently, Moody's has assigned Caa2 ratings to the GBP400 million equivalent senior secured (new money) notes maturing in 2024 issued by New Look Financing plc, a subsidiary of New Look Retail Holdings Limited.

RATINGS RATIONALE

Moody's considers that the post-restructuring capital structure provides sufficient flexibility to enable management to proceed with its business plan. Previously, the company had been limited in its flexibility to generate positive free cash flows due to high rental and financial expenses in the context of declining revenues.

New Look has leading positions across core categories of the UK Womenswear market with good brand recognition on the UK high street. It benefits from additional financial flexibility from lower rents after the implementation of a Company Voluntary Arrangement (CVA) signed in March 2018 and other efficiency measures that have lowered the company's cost base. New Look re-launched its brand in April 2018 refocusing on its core customers, integrating its store and online activities, and realigned its supply chain shortening product lead times.

The rating agency estimates New Look's leverage, as measured in terms of Moody's-adjusted gross debt to EBITDA, of 8.5x in fiscal year 2019 ended 30 March 2019, down from 12.3x in fiscal 2018, and expect it will further reduce to 7.2x and 6.4x in fiscal 2020 and 2021, respectively. The company's business plan is subject to execution risk and Moody's believes New Look needs to demonstrate that it can maintain market share and stabilise revenue in a still highly competitive UK retail market.

LIQUIDITY

New Look's liquidity is considered to be weak, with cash of GBP 71 million at 30 March 2019. The tap bond issuance in early May provided the company with additional GBP 21 million. The revolving credit facility of GBP100 million is expected to remain drawn and therefore unavailable to provide additional liquidity. The GBP100 million trade and operating facilities are substantially utilised.

STRUCTURAL CONSIDERATIONS

The senior secured notes are rated Caa2, one notch below the CFR, reflecting their contractual subordination behind the revolving and operating facilities (which are unrated) upon enforcement of security.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects the sufficient liquidity available to New Look to execute its turnaround plan, the lack of near term debt maturities until 2021, when its drawn revolving credit facility matures, and Moody's expectation of an improved operating performance and positive cash flow generation beyond fiscal 2020.

WHAT COULD MOVE THE RATING UP/DOWN

Upward pressure on the rating could arise over the medium term if i) New Look's liquidity substantially improves; ii) the company delivers on its business plan, showing revenue and EBITDA and free cash flow growth on a consistent basis; iii) Moody's-adjusted leverage is sustained well below 6.0x.

Downward pressure could result from i) any pressure on New Look's liquidity profile; ii) a deterioration in operating performance; iii) Moody's-adjusted debt remaining above 7.0x; and iv) negative free cash flow beyond fiscal 2020.

LIST OF AFFECTED RATINGS

Assignments:

..Issuer: New Look Financing plc

....BACKED Senior Secured Regular Bond/Debenture, Assigned Caa2

..Issuer: New Look Retail Holdings Limited

....Corporate Family Rating, Assigned Caa1

....Probability of Default Rating, Assigned Caa1-PD

Withdrawals:

..Issuer: New Look Retail Group Limited

.... Probability of Default Rating, Withdrawn , previously rated Caa2-PD /LD

.... Corporate Family Rating, Withdrawn , previously rated Caa2

..Issuer: New Look Secured Issuer plc

....BACKED Senior Secured Regular Bond/Debenture, Withdrawn , previously rated C

..Issuer: New Look Senior Issuer plc

....BACKED Senior Unsecured Regular Bond/Debenture, Withdrawn , previously rated C

Outlook Actions:

..Issuer: New Look Retail Group Limited

....Outlook, Changed To Rating Withdrawn From Rating Under Review

..Issuer: New Look Secured Issuer plc

....Outlook, Changed To Rating Withdrawn From Negative

..Issuer: New Look Senior Issuer plc

....Outlook, Changed To Rating Withdrawn From Negative

..Issuer: New Look Financing plc

....Outlook, Assigned Stable

..Issuer: New Look Retail Holdings Limited

....Outlook, Assigned Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Retail Industry published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in London and Weymouth (with its registered office in Weymouth, UK), New Look is a value fashion retailer selling a range of apparel, accessories and footwear. The company principally targets fashion conscious women aged 16 to 45, although its product ranges also include men and teens' wear.

Following the completion of the financial restructuring plan, the group is owned by a combination of the new senior secured noteholders, previous noteholders and management. The largest shareholders are Brait with a 18.5% stake, Alcentra (18.4%), CQS (14.7%) and Avenue (7.5%). Management retains a 5.0% stake in the company.

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.

With reference to the withdrawal of the ratings of New Look Retail Group Limited: The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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.

Roberto Pozzi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Richard Etheridge
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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