Moody’s downgrades L Brands

Moody’s Investors Service said it downgraded all ratings of L Brands, Inc. including its corporate family rating to Ba2 from Ba1 and its probability of default rating to Ba2-PD from Ba1-PD. The company’s senior unsecured guaranteed notes were also downgraded to Ba2 from Ba1 and the senior unsecured unguaranteed notes were downgraded to B1 from Ba2. The speculative grade liquidity rating was lowered to SGL-2 from SGL-1.

“The downgrade of L Brands reflects the continued negative comparable store sales and operating margin compression at Victoria’s Secret,” said Christina Boni, a Moody’s vice president, in a press release. “Although Bath & Body Works continues to outperform, the turnaround at Victoria’s Secret remains in early stages as competitive pressures remain intense.”

L Brands’ Ba2 rating is supported by its popular well recognized brand names and strong free cash flow. The company has good liquidity and moderate leverage with debt to EBITDA of 3.4 times as of Nov. 2. L Brands’ benefits from significant scale with revenues of about $13.1 billion despite its concentration on two narrow product niches.

Moody’s said it put the ratings on review for further downgrade. The review for downgrade acknowledges L Brands’ recurring declines in earnings at Victoria’s Secret and will assess the strategic initiatives being taken to reposition the brand. The review also considers the company’s fourth quarter of fiscal 2019 earnings and whether significant turnaround progress at Victoria’s Secret is evident.

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