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S&P Downgrades Liz Claiborne on Debt Swap

Stocks finish down for week following Japanese earthquake, Libyan conflict.

Standard & Poor’s cut Liz Claiborne Inc.’s corporate credit rating to “CC” from “B-minus” following the firm’s offer to buy back some of its European debt.

 

S&P said it expects to lower the rating again to “selective default” following a the completion of a debt buyback in which the company is offering to pay 96 cents on the dollar for its debt. The credit watchdog said it would then likely raise the rating back to “B-minus.”

 

On Tuesday, Claiborne offered to buy back up to 155 million euros, or $214.7 million at current exchange, of its 350 million euro 5 percent notes due in 2013. The company plans to pay for the purchases with the proceeds of another debt offering.

 

“We assess the tender offer as distressed and the pending transaction as tantamount to a default on the 5 percent notes, but we believe there is no contractual default, nor any cross-default to other debt obligations,” said S&P in its downgrade.

 

“S&P chose to issue a temporary technical downgrade when other leading rating agencies did not,” said Andrew Warren, Claiborne’s chief financial officer. “S&P’s downgrade is not a corporate rating downgrade in the traditional sense, but rather a required short-term technical action pertaining to the specific terms and conditions of our tender offer refinancing. Based upon past precedent, we anticipate that S&P is likely to restore our ‘B-minus’ rating once we complete the cash tender offer for our euro notes, which is scheduled to expire on April 5.”

 

Investors were unmoved by the downgrade as Claiborne’s stock Friday inched up 0.2 percent to $5.46.
Global stock markets were mixed Friday—with declines in Europe and Asia and gains in the U.S.—following the magnitude 8.9 earthquake and devastating tsunami in Japan, the world’s third-largest economy and a key luxury goods market.

 

The Nikkei 225, which closed shortly after the quake hit, fell 1.7 percent in Tokyo, as the Hang Seng Index dropped 1.6 percent in Hong Kong. The DAX slipped 1.2 percent in Frankfurt and the CAC 40 fell 0.9 percent in Paris.

 

In the U.S., the S&P Retail Index rose 0.8 percent, or 3.96 points, to 508.66 Friday, marking a 0.6 percent drop for the week. The Dow Jones Industrial Average increased 0.5 percent, or 59.79 points, to 12,044.40, retaking the 12,000 mark, but slipping 1 percent for the week.

 

Of the 170 stocks tracked by WWD, 73 rose, five were flat and 92 declined for the week.

 

Shares of J.C. Penney Co. Inc. advanced 2.3 percent to $37.67 Friday and established a new 52-week high of $38.61 in intraday trading.