Moody’s trims G-III senior notes

Moody’s Investors Service said it lowered G-III Apparel Group, Ltd.'s senior secured notes rating to B1 from Ba3, flipped the outlook to negative from positive and downgraded its speculative grade liquidity rating to SGL-2 from SGL-1. The agency affirmed G-III’s other Ba3 ratings.

Unexpectedly higher borrowing under the asset-based lending facility over the next 12 months to manage operational needs and the LVMH note maturities which place more debt ahead of the secured notes in the capital structure accounted for the notes’ downgrade, Moody’s said.

The negative outlook reflects risks associated with the loss of licenses for the Calvin Klein and Tommy Hilfiger brands between December 2025 and 2027. The brands account for about 50% of G-III’s revenue, the agency noted.

“The pressure to replace the earnings associated with the lost licenses is compounded by the fact that G-III will also have to address its $650 million asset-based revolving credit facility (ABL) and $400 million of secured notes which mature in August 2025, shortly ahead of the commencement of the license roll-offs,” Moody’s said in a press release.

The lower SGL rating mirrors the projected negative free cash flow in the first half of the fiscal year ending Jan 2024, which is expected to cause a full-year free cash flow deficit. “The SGL downgrade also reflects G-III's increased reliance on its $650 million ABL. However, G-III still has good liquidity supported by $150 million of cash and $290 million of availability under its ABL at Oct. 31, 2022,” Moody’s said.

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