Moody’s cuts True Religion, loan to Caa2

Moody's Investors Service said it downgraded True Religion Apparel, Inc.'s corporate family rating to Caa2 from Caa1, probability of default rating to Caa2-PD from Caa1-PD and first-lien term loan to Caa2 from Caa1.

The second-lien term loan was affirmed at Caa3.

The outlook is negative.

Moody’s said the downgrade reflects its view that True Religion's capital structure is unsustainable (with leverage based on management adjusted EBITDA of nearly 10 times as of January 2016), and that the company faces a heightened probability of default including the potential for discounted debt repurchases.

The company's earnings have steadily declined since 2013. In 2015, revenue declined 7% and management adjusted EBITDA declined 30%, primarily driven by a highly promotional retail environment, a mix shift to non-denim products, which carry lower gross profit than denim, foreign exchange headwinds and lower demand in Europe.

In Moody's view, given the ongoing challenges in the retail environment, premium denim category and brand perception, the company has limited prospects for a meaningful operating performance turnaround in the next several years that would allow it to reduce leverage to a sustainable level.

The agency expects True Religion to have adequate liquidity for the next 12 to 15 months.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.