Approximately $355 million of rated debt affected
New York, July 11, 2014 -- Moody's
Investors Service upgraded the rating on Spencer Gifts LLC's and
Spirit Halloween Superstores LLC's proposed senior secured term
loan to B1 from B2 following the company's announcement of a change
in its proposed financing structure. Moody's also affirmed
SSH Holdings, Inc.'s ("Spencer") B2 Corporate
Family Rating, B2-PD Probability of Default Rating,
and Caa1 rating on its outstanding HoldCo PIK toggle ("HoldCo")
notes. The rating outlook remains stable.
The upgrade reflects the support provided by the remaining $130-$135
million HoldCo notes, as compared to the original structure,
which contemplated fully redeeming them. The change in the proposed
financing does not materially affect total debt, and modestly raises
pro-forma interest expense. The term loan decreases to $225
million from the originally proposed $360 million, and only
$30-$35 million of the HoldCo notes will be redeemed,
compared to the full $165 million repayment originally planned.
Rating actions:
Issuer: SSH Holdings, Inc.
-- Corporate Family Rating, affirmed at B2
-- Probability of Default Rating, affirmed at B2-PD
-- HoldCo PIK toggle notes due 2018, affirmed at Caa1
(LGD 6, from LGD 5)
-- Stable outlook
Issuer: Spencer Gifts LLC and Spirit Halloween Superstores LLC
-- Proposed $225 million senior secured term loan
due 2021, upgraded to B1 (LGD 3) from B2 (LGD 4)
The ratings are subject to receipt and review of final documentation.
The existing senior secured notes rating will be withdrawn following the
close of the transaction.
RATINGS RATIONALE
Spencer's B2 Corporate Family Rating considers the company's high pro-forma
lease-adjusted leverage in the low 6.0 times and aggressive
financial policies including a history of debt-financed shareholder
distributions. The rating also reflects Spencer's limited scale,
significant reliance on the Halloween season, and highly discretionary
product offerings at the Spencer's segment, which appeal primarily
to a narrow demographic of 18-24 year olds. The company's
track record of consistent and stable earnings growth, as well as
its good liquidity profile, provide key support to the rating.
The stable outlook incorporates Moody's expectation for modest revenue
growth and stable operating margin of about 12%-12.5%
(Moody's-adjusted), as well as good near-term liquidity.
The ratings could be downgraded if Spencer's new store openings underperform
historical trends, if debt/EBITDA is sustained above 6.0
times or EBITA/interest below 1.5 times, or if liquidity
materially erodes for any reason. In addition, the term loan
rating may be downgraded to B2 if the amount of cushion provided by the
HoldCo PIK Toggle notes materially decreases.
Ratings could be upgraded if Spencer demonstrates the ability and willingness
to achieve and sustain debt/EBITDA of 5.0 times or lower,
and EBITA/interest expense above 2.0 times. However,
any upgrade would likely be limited to one notch as a result of the company's
aggressive policies regarding debt financed shareholder distributions.
The principal methodology used in this rating was the 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.
SSH Holdings, Inc. ("Spencer"), headquartered in Egg
Harbor, NJ, is a specialty retailer primarily operating under
two brands: Spencer's and Spirit Halloween ("Spirit"). The
company operated 649 Spencer's and 1,052 Spirit stores during the
twelve months ended May 3, 2014, and generated revenue of
approximately $707 million. Spencer is owned principally
by senior management (approximately 72%) and ACON Investments (approximately
25%).
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 Spencer's term loan rating to B1 from B2 due to change in proposed financing structure; affirms B2 CFR