Moody’s lowers J. Crew

Moody's Investors Service said it downgraded Chinos Intermediate Holdings A, Inc.'s (indirect parent company of J. Crew Group, Inc.) corporate family rating to B3 from B2, probability of default rating to B3-PD from B2-PD and the rating on its PIK toggle notes to Caa2 from Caa1.

The SGL-1 speculative grade liquidity rating is unchanged.

Concurrently, the agency downgraded J. Crew Group's secured term loan to B2 from B1.

The outlook is stable.

Moody’s said the downgrade to B3 reflects J. Crew's continued declining earnings trend stemming from weak execution in a challenging apparel retail environment, compounded by high promotional activity, inventory markdowns and cost de-leveraging due to weaker-than-expected sales. The company has meaningfully underperformed since the November 2013 $500 million debt-financed dividend, particularly within its J. Crew retail stores, resulting in $684 million of impairment charges booked in its third quarter.

Year-to-date adjusted EBITDA (as defined by the company) declined 28% to $213.1 million, and EBITDA margin declined to 11.4% from 16.9% last year. As a result, lease-adjusted debt/EBITDA (using Moody's standard analytic adjustments) has deteriorated to nearly 8 times from around 6.6 times at this point last year, and interest coverage deteriorated to about 1.3 times, the agency said.

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