Moody’s Investors Service said Thursday that the recent Claire’s Stores Inc.’s debt repurchase is viewed as a “distressed exchange,” but it noted some positive momentum as the teen accessories retailer shifts its focus away from the malls.
The ratings agency appended the company’s probability of a default rating with an “LD” for limited default. The ratings for Claire’s is now Caa3-PD/LD from Caa3-PD.
A Moody’s report on the rating appendage said the rating will be removed after three days. Although the exchange is viewed as a “distressed exchange,” it doesn’t amount to an event of default under any of the company’s debt agreements. The limited time for the LD appendage is to reflect the issuer’s inability to meet debt service obligations as outlined in its original debt agreements.
Since the exchange doesn’t materially change Claire’s overall credit profile, all other corporate credit ratings are unchanged. The rating outlook remains negative, Moody’s said, due to the likely need for further restructuring ahead of the maturing of the subordinated PIK notes due in 2017.
The rating’s agency did say that it expects residual positive momentum as “Claire’s continues to strategically shift its focus ‘off-mall’ and expands the concession format, leverages wholesale opportunities and grows e-commerce.”
In a regulatory filing in May with the Securities and Exchange Commission, Claire’s exchanged $174.4 million aggregate principal amount of its 10.5 percent senior subordinated notes due 2017 held by Apollo Funds for $174.4 million aggregate principal amount in its newly issued 10.5 percent PIK senior subordinated notes due 2017. A PIK, or payment-in-kind, is a financial instrument that pays interest or dividends with additional debt or equity instead of cash. The acquired subordinated notes have been extinguished.
The note exchange makes Apollo an indirect controlling shareholder of Claire’s. Apollo Management acquired Claire’s in 2007 in a $3.1 billion transaction.