Moody's cuts St. John Knits

Moody's Investors Service said it downgraded St. John Knits International, Inc.'s corporate family rating to B3 and probability-of-default rating to Caa1.

The B2 ratings (LGD2, 29%) on the company's secured bank credit facilities were confirmed.

The outlook is negative. This concludes the review for downgrade that began on Jan. 22.

Moody's said the downgrade reflects the company's weakening liquidity profile stemming from the March 2010 expiration of its revolving credit facility and subsequent increases in scheduled term loan amortization payments up to the March 2012 maturity.

The agency said it expected St. John's operating performance to deteriorate in fiscal 2009 due to the significant decline in global consumer spending, but the company's earnings and credit metrics have been weaker than expected due to a significant level of promotional activity in the first quarter, partially offset by significant cost reductions.

St. John's near-term liquidity is supported by the expectation for positive free cash flow, balance sheet cash and access to its $45 million revolving credit facility up to its March 2010 expiration, the agency said.

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