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Rating Action:

Moody's upgrades Revlon's ratings, including CFR to B1

Global Credit Research - 07 Apr 2011

Approximately $1.3 billion in rated debt affected

New York, April 07, 2011 -- Moody's Investors Service today upgraded Revlon Consumer Products Corporation's ("Revlon") Corporate Family and Probability of Default ratings to B1 from B2. Moody's also upgraded the company's $140 million asset backed revolving credit facility to Ba1 from Ba2 and its $330 million senior secured notes to B2 from B3. Revlon's $800 million secured term loan facility rating of Ba3 and Speculative Grade Liquidity rating of SGL-2 were both affirmed. The outlook is stable.

RATINGS RATIONALE

The upgrade of Revlon's Corporate Family rating to B1 reflects the company's ability to sustain operating and financial momentum despite the ongoing challenges of the macroeconomic environment and intensified competitive environment. Revlon's credit metrics continue to improve modestly driven by strong profitability and cash flow generation with further gains expected in fiscal 2011.

"Revlon is well positioned to build on the sales momentum across all of its geographies and brands, including its mature U.S. business, generating strong organic growth of 9% in the fourth quarter," says Moody's Vice President and Senior Credit Officer Janice Hofferber. "This acceleration of brand performance combined with its multi-year deleveraging and strong liquidity profile should provide significant financial flexibility to support new product development and brand awareness critical in the high competitive global cosmetics category," adds Ms. Hofferber.

Revlon's B1 corporate family rating reflects the company's global brand franchises, strong geographic and product diversification for a number of well known brands in color cosmetics, hair color and fragrances, and sustained strong profitability (fiscal 2010 EBITA margins of 16.2%) and cash flow metrics (fiscal 2010 Free Cash Flow to Debt of 6.9%). Revlon's ratings are constrained by its still relatively high adjusted leverage (fiscal 2010 Debt to EBITDA of 5.4 times) and limited scale in the highly competitive cosmetics category characterized by deep-pocketed, large competitors.

We expect Revlon's profitability to be sustainable despite ongoing investments needed to maintain revenue growth and market share including significant product development, product display capital outlays and brand advertising and promotional spending. However, Revlon's ratings will remain somewhat constrained by the highly competitive nature of the cosmetics and personal care category in which it operates and the company's still relatively high adjusted leverage (5.4 times).

The following ratings of Revlon were upgraded:

- Corporate family rating to B1 from B2;

- Probability of default rating to B1 from B2;

- $140 million senior secured asset based revolving credit facility due March 2014 to Ba1 (LGD 1, 1%) from Ba2 (LGD 1, 2%); and

- $330 million 9 ¾% Senior Secured Notes due 2015 to B2 (LGD 5, 72%) of B3 (LGD 5, 74%).

The following ratings of Revlon were affirmed (LGD assessments revised):

- $782 million senior secured term loan facility due March 2015 at Ba3 (LGD 3, 30%).

- Speculative grade liquidity rating of SGL-2

Outlook is stable

We note that although the Ba3 rating on the senior secured term loan has remained unchanged, the four-year loss rate on the instrument has improved to 4.54%, following the Corporate Family Rating's upgrade to B1, from 5.95% at a B2 Corporate Family Rating. The upper bound on the four-year loss rate for a Ba3-rated instrument is 4.49%.

Revlon's ratings could be upgraded if the company was able to continue to demonstrate consistent above average organic growth, improved market share for its core Revlon and Almay brands and sustain credit metrics including Debt-to-EBITDA below 4.5 times and EBITA-to-interest expense of at least 3.0 times.

Revlon's ratings could be downgraded if the company's operating performance deteriorated such that EBITA margins dropped below 12%, Debt-to-EBITDA exceeded 5.5 times or EBITA-to-interest expense dropped below 1.5 times. Any shift in the financial policy of Revlon or of its majority-owner, M&F, towards debt-financed acquisitions and share repurchases, could also result in a downgrade.

The last rating action regarding Revlon was on February 25, 2010 when Moody's affirmed the company's ratings, including its Corporate Family rating and Probability of Default rating of B2 and its Speculative Grade Liquidity rating of SGL-2 and assigned ratings of Ba2 and Ba3 to the company's proposed $140 million asset-based revolving credit facility and its $800 million senior secured term loan, respectively. The stable outlook was unchanged.

For additional information, please refer to Moody's Credit Opinion on Revlon available on www.moodys.com.

The principal methodology used in rating Revlon was the Global Packaged Goods methodology published in July 2009 and available on www.moodys.com in the Ratings Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the rating process of rating Revlon can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in New York, Revlon Consumer Products Corporation is a worldwide cosmetics, skin care, fragrance, and personal care products company. The company is a wholly-owned subsidiary of Revlon, Inc., which is majority-owned by MacAndrews & Forbes ("M&F"), which is in turn wholly-owned by Ronald O. Perelman. Revlon's net sales for the twelve-month period ended December 2010 were approximately $1.3 billion. M&F beneficially owns approximately 77% of Revlon's outstanding Class A common stock, 100% of Revlon's Class B common stock and 78% of Revlon's combined outstanding shares of Class A and Class B common stock, which together represent approximately 77% of the combined voting power of such shares.

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, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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
Janice Hofferber, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Christina Padgett
Senior Vice President
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 Revlon's ratings, including CFR to B1
No Related Data.

 

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