S&P downgrades Gymboree

S&P said it lowered its corporate credit rating on the Gymboree Corp. to D from CC.

At the same time, S&P lowered its issue-level rating on the company's senior secured term loan ($769.1 million outstanding as of Jan. 28, 2017) to D from CC. The recovery rating on this debt instrument remains unchanged at 4, indicating an expectation for average (30%-50%; rounded estimate: 30%) recovery in the event of default.

The issue-level rating on the company's 9 1/8% senior unsecured notes ($171 million outstanding as of Jan. 28, 2017) due Dec. 1, 2018, remains D. The 6 recovery rating indicates an expectation for negligible (0%-10%; rounded estimate: 0%) recovery in the event of default.

The downgrade follows Gymboree's decision not to make its interest payment due June 1 on its senior notes and enter into a 30-day grace period.

“We believe the company will likely elect not to meet its debt obligations with lenders and bondholders until it has agreed on a financial restructuring plan with them,” S&P said in a news release.

“Technically, a payment default has not yet occurred under the indenture governing the notes, which provides a 30-day grace period. However, we believe there is a high likelihood that the company will not make the interest payment in full within the stated grace period, given that the company is in negotiations with lenders and bondholders to restructure its debt.”

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