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Global Credit Research - 03 Mar 2011
Approximately $150 million debt affected
New York, March 03, 2011 -- Moody's Investors Service upgraded the corporate family and probability
of default ratings of Perry Ellis International, Inc. (Perry)
to B1 from B2 and assigned a B2 rating to its new senior subordinated
bonds, concluding the review for upgrade commenced on February 28,
2011. The actions follow the company's pricing of its previously
announced equity offering with expected net proceeds of approximately
$52.6 million, as well as its pricing of $150
million of 7.875% senior subordinated notes due 2019.
The upgrade incorporates expectations for an improved credit profile pro
forma for the transactions.
The anticipated repayment of revolver borrowings with equity and bond
proceeds will reduce leverage and enhance external liquidity by increasing
revolver availability following Perry's utilization of a significant amount
of its revolver capacity to fund the acquisition of Rafaella Apparel Group,
Inc. (Rafaella). Furthermore, the bond issuance will
extend the maturity profile to April 2019 for the new bonds compared to
September 2013 for the existing bonds that will be refinanced.
A summary of today's actions follows. Ratings are subject
to review of final documentation. Moody's will likely withdraw
the B3 rating on the existing senior subordinated bonds due 2013 assuming
the company repays substantially all of the existing senior subordinated
Perry Ellis International, Inc.
....Probability of Default Rating, Upgraded
to B1 from B2
....Corporate Family Rating, Upgraded
to B1 from B2
....$150 million 7.875%
Senior Subordinated Bonds due 2019, Assigned B2, LGD5,
....Outlook, Changed To Stable From
Rating Under Review
Perry's B1 corporate family rating incorporates its narrow product
focus (albeit somewhat improved with the acquisition of Rafaella) and
EBITA margins that lag most rated apparel peers. Furthermore,
leverage in the mid 3 times debt-to-EBITDA range (pro forma
for the transactions and including the acquisition of Rafaella) poses
challenges for operating in an industry sensitive to both consumer spending
and fashion trends. However, the company's well-known
brand portfolio somewhat diminishes sensitivity to fashion trends and
its broad range of price points allows the company to target multiple
demographic groups. These factors contribute to a solid presence
across multiple distribution channels, notwithstanding some customer
concentration with key retailers. Finally, expectations for
continued positive free cash flow also support the rating.
The stable outlook assumes Perry will refinance its revolver (due February
2012) over the near term and will successfully integrate the Rafaella
business. In addition, to sustain the B1 corporate family
rating, Perry Ellis must demonstrate continued commitment to maintaining
a conservative credit profile. The stable outlook also incorporates
expectations that sales growth will at least partially mitigate the potential
for cost increases that could pressure margins beginning in late calendar
Challenges in integrating Rafaella, sustained declines in EBITDA,
or deterioration of the liquidity profile could pressure the ratings down.
Specifically, negative free cash flow or leverage approaching 4.5
times debt-to-EBITDA could result in a downgrade.
The company's scale and product concentration limit upward ratings
momentum. However, we would consider a higher rating with
enhanced product and channel diversification, as well as greater
The principal methodologies used in this rating were Global Apparel Industry
published in May 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Perry Ellis International designs, distributes and licenses apparel
and accessories for men and women. The company, through its
wholly owned subsidiaries, owns or licenses a portfolio of brands
that includes Perry Ellis®, Jantzen™, Laundry by
Shelli Segal®, C&C California®, Original Penguin®
by Munsingwear®, Callaway®, Cubavera®, Savane®,
Farah®, Gotcha™, and Nike® Swim. Pro
forma for the acquisition of Rafaella, Perry's annual revenue is
approximately $900 million.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
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.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Perry Ellis CFR to B1, assigns B2 rating to new bonds
250 Greenwich Street
New York, NY 10007
No Related Data.
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