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Moody’s drops Gymboree, loan, notes
Moody's Investors Service said it downgraded Gymboree Corp.’s corporate family rating to Caa3 from Caa1 and probability of default rating to Caa3-PD from Caa1-PD.
Concurrently, the agency lowered the ratings on the company's senior secured term loan due 2018 to Caa3 from Caa1 and senior unsecured notes due 2018 to Ca from Caa3.
In addition, Moody's downgraded the speculative grade liquidity rating ("SGL") to SGL-4 from SGL-3.
The outlook is negative.
Moody’s said the downgrade of the corporate family rating to Caa3 reflects Gymboree's weak operating performance and deteriorating liquidity. Net sales and EBITDA fell 4% and 49%, respectively, in the quarter ended July 30 due to weak customer traffic and margin pressure from inventory clearance activity.
This reversed the positive trends reported in the previous two quarters. Given continued weak trends, the company reduced its EBITDA outlook for the 12-month period ending Jan. 28, 2017 to be in the range of $85 million to a $105 million, down from its previous guidance of $110 million to $125 million excluding the divested Play & Music business.
For the 12 months ended July 30, EBITDA stood at around $99 million and debt/adjusted EBITDA (using the Company's calculation of EBITDA from continuing operations) was over 10 times.
Given the approaching maturities of its ABL revolver in December 2017 and secured term loan in February 2018, refinancing its capital structure could be challenging without substantial near term improvement in earnings.
Thus, the risk of default, including the potential for a distressed exchange-type restructuring, is very high, Moody’s explained.
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