Moody’s Investors Service on Monday lowered VF Corp.’s rating outlook to negative from stable in reaction to the apparel giant’s “increasingly aggressive financial policy.”

The agency maintained its A3 rating on VF’s senior unsecured credit and its Prime-2 rating on the company’s commercial paper.

“The change in rating outlook primarily reflects the company’s sizable share repurchases of approximately $300 million undertaken in the first quarter of 2012,” commented Scott Tuhy, vice president of Moody’s, noting that the buybacks were “soon on the heels” of the Greensboro, N.C.-based firm’s acquisition of The Timberland Co., which closed in September.


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“To a lesser extent, the company’s metrics are under additional pressure from the meaningful increase in the company’s unfunded pension deficit, which increased by approximately $195 million in 2011,” Tuhy said.

Moody’s noted that the Timberland purchase raised VF’s debt-to-EBITDA, or earnings before interest, taxes, depreciation and amortization, ratio to 2.4 times and that it anticipated cash flow would be used to reduce debt. “While over time we think the company can improve metrics, these more aggressive share repurchases indicate the company is more willing to maintain a more leveraged financial position than historically.” The company’s performance “continues to be solid,” Tuhy said, but the buybacks mean “there is less cushion for the company to be able to improve balance sheet metrics.”

At the end of its first quarter on March 31, VF had long-term debt of $1.83 billion and cash and cash equivalents of $325.6 million. Short-term borrowings were $680.5 million at the end of the first quarter, down from $1.15 billion last September as VF endeavored to pay off debt taken on in the Timberland deal.
Officials at VF had no comment on the Moody’s change. Shares closed Monday at $152.05, down $2.15 or 1.4 percent.

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