NEW YORK — Phillips-Van Heusen Corp. might have scored a crown jewel in Calvin Klein Inc., but the long-term gain has a short-term cost.
Moody’s Investors Service took its rating on PVH’s debt down two notches Wednesday, given the acquisition’s price tag.
Moody’s dropped PVH’s senior implied debt rating to "B1" from "Ba2," leaving the measure four notches into sub-par or "junk" territory.
Additionally, the senior unsecured issuer rating was lowered to "B2" from "Ba3;" the rating on $100 million in senior secured debentures due 2023 was cut to "B1" from "Ba2," and $150 million in senior subordinated notes due 2008 were lowered to "B3" from "Ba3."
Moody’s rated PVH’s debt outlook as stable.
"The downgrade reflects the negative impact on PVH’s cash flow resulting from the significant purchase price for the CKI acquisition, which increased leverage, inclusive of leases and preferred stock," said Moody’s in a statement.
In February, PVH completed the nearly $600 million deal, which included $400 million in cash, $30 million in PVH stock, a nine-year warrant to Klein to purchase PVH shares and contingent payments to the designer for 15 years based on sales of Calvin Klein branded products.
Cash for the deal was financed through a $250 million convertible preferred stock issuance to Apax Managers Inc. and a $125 million two-year secured loan from the same. Apax will control 33 percent of the voting shares of PVH.
Moody’s noted a timing mismatch between the potential cash growth for PVH from CKI versus the cash outflow related to the acquisition financing.
"The acquisition cost increases leverage on a cash basis and causes a cash drain due to the substantial contingent purchase price payments and a minimal intermediate term consulting agreement with Mr. Klein," said Moody’s.
PVH’s new rating, said Moody’s, also recognizes "significant opportunities for revenue and margin enhancements for PVH from the Calvin Klein brand via increased licensing revenue, sub-branding, expertise in the women’s market and potential cost savings within the Calvin Klein infrastructure."
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews
“Stranger Things” is getting a new cast member for season 2. Meet @sadiesink_, the 15-year-old who will be joining the Netflix series for its new season. You may recognize her from “The Glass Castle” with Brie Larson and Woody Harrelson, but the Texas native’s next role goes in an entirely different direction. She describes her character, Max, as “a rough and tumble skater girl [who] becomes friends with the boys at school.” The second season debuts on October 27. (📷: @jgreenery) #wwdeye
Amid the Harvey Weinstein controversy, there’s another sector that’s being put under the spotlight for sexual abuse: the modeling industry. While rumors about abuse and sexual harassment of female and male models — and the photographers, agents and others who perpetrated it — have circulated within the fashion world for years, model @cameronrussell started posting stories from models on Instagram last week about abusive situations they’ve encountered — from sexual harassment and molestation to attempted rape. Over 75 have weighed in so far. Read more on WWD.com. Link in bio. #wwdnews
To celebrate its 16th anniversary, @dylanscandybar tapped designers and celebrities to create mosaics out of candy. The mosaics will be auctioned off to support the philanthropic cause of each participant’s choice. Pictured here is the mural created by @aliceandolivia's Stacey Bendet. For a first look at some of the other artwork being unveiled tonight, go to WWD.com. #wwdeye
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye