S&P: Genesco outlook now negative

Standard & Poor's said it revised its outlook on Genesco Inc. to negative from stable and affirmed its outstanding ratings on the company, including the BB- corporate credit rating.

S&P said the outlook revision follows Genesco's announcement that it has signed a definitive agreement to acquire privately owned Hat World, a specialty retailer of branded and licensed headwear, for about $165 million. The acquisition will be largely debt funded, with about $115 million in borrowings from a new credit facility and about $50 million of cash on hand.

The outlook change reflects a material increase in debt leverage and the higher debt service burden related to this acquisition. Pro forma for the transaction, total debt to EBITDA is expected to increase to the mid 4x level, which is weak for the current rating, from about 3.8x for the 12 months ended Nov. 1. In addition, increased capital spending and working capital requirements are expected to diminish free cash flow generation.

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