Moody’s rates Lifestyle Ba1, lowers debt to junk

Moody's Investors Service said it assigned a Ba1 corporate family rating to Lifestyle International Holdings Ltd. and withdrew the company's Baa3 issuer rating.

The agency also said it downgraded the senior unsecured ratings on the notes issued by LS Finance (2017) Ltd., LS Finance (2022) Ltd. and LS Finance (2025) Ltd. to Ba2 from Baa3.

These notes are guaranteed by Lifestyle, Moody’s said.

The outlook is stable.

The downgrades conclude a review for downgrade that began in November.

The downgrades reflect the deterioration in the company's credit profile as a result of its new development project in Kai Tak, Moody’s said.

Upon completion, the store will reduce Lifestyle's reliance on its existing flagship store in Causeway Bay, which accounts for more than 90% of total revenues and cash flows, the agency explained.

But during the construction phase over the next five to six years, the project increases the company's debt, erodes its cash and financial asset buffers and increases its business and development risks, Moody’s said.

The agency said it expects Lifestyle's adjusted total debt-to-EBITDA will be about 5x to 6x in the next two years, but its leverage could be higher if the company decides to borrow additional funds to keep more cash on hand.

The company's adjusted total debt-to-EBITDA was 4.3x at year-end 2015, Moody’s said.

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