Moody’s Investors Service assigned a “B1” corporate family rating to Lands’ End Inc. and a “B1” rating to the company’s proposed $515 million term loan B due 2021.
The ratings agency said the “rating outlook is stable.”
Proceeds from the transaction will be used to fund a $500 million dividend payment to Lands’ End’s parent company, Sears Holdings Corp., prior to being spun off as a public company to Sears’ shareholders. Sears has said it will not retain an ownership interest in Lands’ End following the spin-off.
Moody’s said the “B1” corporate family rating reflects Lands’ End’s high leverage after the spin-off with “rent-adjusted debt/EBITDA in the mid four times range” following the debt-financed dividend. It also said that the “B1” rating reflects Lands’ End’s “erratic historical operating performance.”
While Moody’s said the Lands’ End brand remains relevant with consumers, given its excess of $1.5 billion in sales, it also noted that the brand’s presence in Sears stores in a “risk,” given the contraction in Sears store base and long-term track record of negative comparable-store sales over the past few years. That negative is offset by the fact that only 15 percent of Lands’ End sales are generated in the stores, and that Lands’ End has a good liquidity profile since it is expected to have access to a $175 million asset-based revolver.
Sears and Lands’ End will enter into certain “arms-length contracts,” including those related to ongoing Lands’ End shops at Sears, plus Lands’ End participation in Sears’ Shop Your Way program.