S&P trims KNB Holdings

S&P said it downgraded KNB Holdings Corp. and its first-lien term loan to CCC+ from B-, because the agency believes the company’s capital structure is unsustainable. The 3 recovery rating is unchanged.

“Our downgrade reflects weak operating performance primarily due to import tariffs, leading us to believe the company’s capital structure is unsustainable and liquidity has become constrained,” said S&P in a press release.

KNB’s operating performance weakened further as sustained tariff headwinds and an operational issue in the soft homes division hurt profitability and pushed leverage to 11.3x for the 12 months ended Sept. 30, from 4.4x for the 12 months ended Sept. 30 2018, the agency said.

“Profitability and cash flow restoration will be limited because the company has extremely high exposure to China, sourcing more than 70% of its products there, including nearly 100% of lighting products. We also expect retailers to continue operating at more conservative inventory levels going forward, particularly as additional phase four tariffs roll out in mid-December 2019, and discretionary consumer spending could slow with higher prices,” S&P said.

The outlook is negative.

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