S&P gives Ascena Retail CFR BB, loan BB+

Standard & Poor's said it assigned a BB corporate credit rating to Ascena Retail Group Inc.

The outlook is stable.

At the same time, the agency assigned a BB+ issue-level rating to the company's proposed secured term loan facility with a recovery rating of 2, indicating an expectation for substantial recovery for lenders in the event of a payment default or bankruptcy. Recovery expectations are in the lower half of the 70% to 90% range.

Proceeds from the proposed $1.8 billion term loan facility will be used to partially fund the $2.2 billion acquisition of Ann Inc. The remaining financing will come from the issuance of equity.

"The rating on Mahwah, N.J.-based Ascena Retail Group Inc. reflects the company's significant operating scale as the third-largest specialty retailer in the U.S. by revenue with approximately 5,000 store fronts following the acquisition of Ann Inc. Additionally, the company will operate seven brands offering apparel for tween girls, mature women, plus size women's apparel, and intimates in mall-based and off-mall-based locations and online," S&P credit analyst Mathew Christy said in a news release.

"After the assumption of new debt, we forecast adjusted debt leverage in the low- to mid-3x range and FFO to total adjusted debt in the low-20% range pro forma for the acquisition of Ann Inc. The company historically grew via debt financed acquisitions, followed by a period of integration and develeraging. We expect the company to focus on integrating the operations of Ann Inc. and use excess free operating cash flow to pay down debt following the closing of this latest acquisition."

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