Standard & Poor’s slapped Barneys New York with a debt downgrade Monday, noting the luxe retailer has a deteriorating liquidity position but no financial covenants that cause near-term concern.
S&P cut the firm’s debt to “CCC” from “B-minus,” skipping over the “CCC-plus” rating on the debt watchdog’s scale. The rating indicates the retailer, acquired by Dubai-based Istithmar for over $900 million in 2007, is vulnerable to default. The current rating is eight notches below the line separating investment from speculative or junk status, versus the prior mark’s level at six ticks below it. The outlook remained negative, having moved there from stable last month.
“The downgrade reflects the deteriorating liquidity position of the company as demonstrated by the need for a cash infusion by Istithmar World,” said David Kuntz, S&P credit analyst. Istithmar is said to be ready to provide about $10 million in cash to the troubled specialty store.
The debt squeeze comes at a tough time for Barneys and luxury retailers in general. Even larger competitors such as Neiman Marcus Inc. and Saks Inc. are finding it difficult to get the well-heeled to spend. Retailers often depend on a combination of money flowing through their cash registers and publicly held debt or loans from banks to keep their financial engines running. Since the financial crisis began last fall, all three of these funding sources have slowed to a trickle.
“We expect revenues to decline over the next few quarters due to negative same-store sales, and we anticipate that increased promotional activity and negative operating leverage are likely to pressure margins,” S&P said of Barneys.
Istithmar will likely have to put money into the business to cover holes in its finances, said the ratings agency, which also noted it is “becoming increasingly concerned that vendors may tighten terms or limit shipments to the company.”
Last month, Hilldun Corp., a key factoring firm, advised vendors and designers to hold shipments to the retailer pending disclosures about Barneys’ finances.
Istithmar chief executive officer David Jackson told WWD at the time: “We are continuing to work alongside Barneys’ management to resolve the concerns of the factoring community.We hope to have a resolution in short order.”
Barneys has been without a ceo of its own since the resignation last July of Howard Socol.
Despite the news on the privately held Barneys, shares of publicly held retailers were relatively flat Monday after two straight trading sessions with increases of at least 4.5 percent.
The S&P Retail Index dipped 0.3 percent, or 0.88 points, to 327.91, in lockstep with the Dow Jones Industrial Average, which also fell 0.3 percent, or 25.57 points, to 8,057.81.
However, some retailers continued to move upward. Among them was The Talbots Inc., which shot up 16.9 percent to $4.57. After the market closed, the retailer posted fourth-quarter losses of $366.5 million, $136.3 million of which were attributed to continuing operations.
Among the other gainers were Hot Topic Inc., up 11.4 percent to $12.83; Macy’s Inc., 8.8 percent to $12.93; Charlotte Russe Holding Inc., 7.8 percent to $11.21; American Apparel Inc., 7.3 percent to $4.27; Nordstrom Inc., 1.6 percent to $22.26, and Saks Inc., 1.4 percent to $2.86.
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