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Moody's lowers Linens 'N Things
Moody's Investors Service said it downgraded Linens 'N Things, Inc.'s corporate family and probability-of-default ratings to Caa2 from Caa1, downgraded its $650 million senior secured guaranteed notes due 2014 to Caa3 (LGD4, 64%) from Caa2 and affirmed the speculative-grade liquidity rating at SGL-4.
The ratings were placed on review for further possible downgrade.
The agency said the downgrade was prompted by the company's weaker-than-expected operating margin in the fourth quarter and by evidence that the already challenged home goods sales environment has worsened, as evidenced by the recent announcement by industry leader Bed, Bath and Beyond that it guided its fiscal 2008 earnings per share downward. As a result, Moody's expects that Linens 'N Things will be challenged to stem its current level of operating losses and free cash flow drain, thus placing further strain on the company's already weak liquidity position and increasing the probability of default.
Moody's said its review will focus on the company's operating performance - particularly its level of free cash flow deficit, the ongoing level of support by its trade creditors and its borrowing base availability - as well as the overall retail selling environment of the home goods sector.
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