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Rating Action:

Moody's upgrades Perry Ellis CFR to B1, assigns B2 rating to new bonds

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.

RATINGS RATIONALE

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 bonds.

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, 73%

....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 2011.

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 scale.

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.

REGULATORY DISCLOSURES

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.

New York
Karen Berckmann
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Perry Ellis CFR to B1, assigns B2 rating to new bonds
No Related Data.
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