S&P: Nine West more likely to revamp debt; Moody’s pares Cole Haan rating

  • Nine West capital structure “unsustainable”: S&P
  • Retail environment challenging: S&P and Moody’s
  • Cole Haan: fashion risk, good brand recognition: Moody’s

Nine West, the New York women’s apparel, footwear and accessories designer and retailer, is likely to restructure its debt because “its capital structure is unsustainable,” Standard & Poor’s says.

Nine West recently retained Lazard Frères to figure out a capital-structure solution.

At Dec. 31, Nine West, backed by the private equity firm Sycamore Partners, had $1.5 billion of debt outstanding. The company has about $1 billion of debt maturing in 2019, and its unsecured debt is trading at 20 cents to 30 cents on the dollar, analyst Suyun Qu wrote in a recent report.

Qu cut her corporate-credit rating on Nine West to CCC- from CCC. The outlook remains negative.

Cash-flow generation is weak, debt leverage is “very high” and the retail environment for brick-and-mortar stores, which are Nine West’s major customers, is “difficult,” Qu wrote.

Separately, Moody’s Investors Service cut its corporate-family rating on Apax Partners-backed Cole Haan, the Greenland, New Hampshire, designer and retailer of footwear and accessories for men and women.

Analyst Raya Sokolyanska pared Cole Haan, formally Calceus Acquisition, to Caa1 from B3. She made a similar cut in the ratings for the senior secured first-lien term loan and for the probability of default.

The outlook is stable, the analyst said, assessing that Cole Haan’s liquidity is adequate for the next year even as she expects free-cash-flow generation to be “modestly negative” and earnings to decline.

The Caa1 rating reflects positives and negatives at Cole Haan.

EBITDA improved in the first three quarters of fiscal 2017. At Feb. 25, the debt-to-EBITDA multiple was 6.1x adjusted by management and 5.9x adjusted by Moody’s, the analyst said.

But earnings trends over the next year or two are likely to be weak as industry conditions are challenging, even allowing for Cole Haan’s introduction of new products and online initiatives.

Another pairing: The rating reflects “increased fashion risk and exposure to discretionary spending,” offset by “good brand recognition, growth in the direct-to-consumer channel, and diverse distribution channels,” Qu wrote.

Sycamore and Nine West declined comment. Apax and Cole Haan couldn’t be reached for comment.

Action Item: Contact the analysts: suyun.qu@spglobal.com and raya.sokolyanska@moodys.com.

The Cole Haan store at 620 Fifth Avenue, Rockefeller Center, Manhattan, on May 18, 2017. Photo by Buyouts Staff.

Correction: An earlier version of this story misstated Cole Haan’s headquarters city. It is Greenland, New Hampshire.