Moody's rates Sally loans Ba2, B2; notes B2, Caa1

Moody's Investors Service said it assigned B2 corporate family and probability-of-default ratings and an SGL-2 speculative grade liquidity rating to Sally Holdings, LLC, a Ba2 rating with a loss-given-default assessment of LGD1 (7%) to the company's $400 million senior secured guaranteed bank revolving credit facility, B2 ratings to its $1.07 billion senior secured guaranteed term loans (LGD4, 50%) and $430 million senior unsecured guaranteed notes (LGD4, 55%) and a Caa1 rating to its $280 million unsecured senior subordinated guaranteed notes (LGD6, 93%).

The outlook is stable.

Sally Holdings will own the beauty retail operations and the beauty distribution businesses currently owned by Alberto-Culver Co., the shareholders of which will receive from New Sally Holdings, Inc. one share of each New Alberto-Culver and New Sally stock and a special cash dividend of $25 per share (about $2.35 billion). New Sally will fund the special dividend with debt and with $575 million of equity invested by Clayton, Dubilier & Rice Fund VII LP. At the conclusion of the transaction, New Sally will be owned 52.5% by Alberto-Culver shareholders and 47.5% by Clayton, Dubilier & Rice, and New Sally will be renamed Sally Beauty Holdings, Inc.

The ratings reflect the agency's view that post-transaction credit metrics that will be weak, with very high leverage and low cash flow coverage. The ratings are further constrained by sales concentrations in hair care products, vendor concentrations and wide-ranging competition.

Offsetting these negatives are the company's investment-grade characteristics, including extensive geographic diversification, leading positions in defined subsectors of retail, low seasonality and cyclicality and generally robust comparable store sales increases, Moody's said.

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