S&P rates Sally Beauty notes BB-

S&P said it assigned its BB- issue-level rating and 3 recovery rating to Sally Beauty Holdings Inc.'s proposed $300 million senior secured second-lien notes. The 3 recovery rating indicates an expectation for meaningful (50%-70%; rounded estimate: 55%) recovery in the event of a payment default or bankruptcy.

“At the same time, we lowered our issue-level rating on the company's existing senior unsecured notes to B from BB- and revised our recovery rating to 6 from 4. The 6 recovery rating indicates our expectation for negligible (0%-10%; rounded estimate: 0%) recovery in the event of a payment default or bankruptcy. Our BB+ issue-level rating and 1 recovery rating on SBH's senior secured term loan B are unchanged,” the agency said in a press release.

The proposed notes will be secured by a second-lien priority claim on the company's assets.

The company is also raising its asset-based lending facility to $600 million from $500 million and adding a $20 million first-in, last-out term loan.

“In our view, the transaction will bolster the company's liquidity position and increase its financial flexibility during a period of considerable uncertainty. Pro forma for the leverage-neutral transaction, SBH will have about $700 million of cash on its balance sheet,” S&P said.

The outlook is negative.

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