Moody's rates Novartex debt B3, Caa3

Moody's Investors Service said it assigned a Caa2 corporate family rating and a Caa2-PD probability of default rating to Novartex. Concurrently, Moody's assigned a B3 rating to the €500 million of senior bonds due October 2019 issued by Vivarte and a Caa3 rating to the €780 million reinstated debt due October 2020 issued by Novarte, both subsidiaries of Novartex. The outlook is negative.

In March 2014, Novartex entered into a financial restructuring after having defaulted on the debt backing Charterhouse's leveraged buyout in 2007. The restructuring, which closed in October 2014, resulted in a €2 billion debt write-off, leaving €780 million of reinstated debt. In addition, lenders injected €500 million of cash into Vivarte through the new money bond, whose proceeds will be mainly used to fund the company's material capex requirements.

The agency said Novartex's Caa2 corporate family rating reflects the company's continued loss of revenues and profitability over the last four years, high execution risk related to its turnaround strategy, exposure to the increasingly competitive French footwear and apparel markets, negative free cash flow projected over the next three years owing to substantial capex spending and its very high adjusted leverage ratio with limited deleveraging potential over the rating horizon.

More positively, the rating also reflects the company's leading position within the French footwear and apparel markets, its sizable store and distribution networks and its available cash position at the closing of the restructuring, Moody’s said.

The negative outlook reflects the distraction of Novartex's management from the operating execution due to the focus on the financial restructuring, the significant challenge for the company to regain market share in a very competitive environment and Moody's view that the turnaround plan will take time to bear fruit due to the scale of capex to be deployed and will encompass significant execution risk, the agency said.

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