Vince isn’t having a great week.
Days after the brand decided to delay filing its financial results with the Securities and Exchange Commission, citing technical difficulties, analysts with Moody’s Investor Service decided to downgrade the company’s credit rating to Caa1, a non-investment level rating associated with substantial risk.
Vince was previously rated at B3, a more speculative rating but one still considered not to be investment worthy. The company’s default rating also received a downgrade to Caa1 from B3 and its liquidity rating was bumped down to SGL-4 from SGL-3, meaning it’s now seen as having weak liquidity.
Overall, Moody’s said it expects the company’s liquidity and its ability to comply with financial covenants to be “pressured over the next 12 to 18 months.”
The ratings agency pointed to Vince’s recent disclosure that its main holding company gave an operating subsidiary $1.7 million in order to remain compliant with the terms of $175 million term loan due 2019 and the fact that the company said it’s likely to make additional compliance payments going forward.
Vince Holdings Corp. is only allowed to such “equity cures” in any four-quarter period under its credit agreement “which constrains its ability for future cures,” according to Moody’s.
While Vince likely has about $30 million in borrowing availability under a $80 million asset-based revolving loan, Moody’s also highlighted the company’s decision, revealed simultaneously with the financial filing delay, to enter a deal with Bank of America for additional borrowing against its current cash holdings of $20 million.
Vince could secure an upgraded rating from Moody’s should it see a “reversal of recent operating trends” with revenue and earnings before interest, taxes, depreciation and amortization growth, but another downgrade could happen “if the company fails to stabilize ongoing negative trends resulting in a deterioration in credit metrics and liquidity.”
When the company revealed late last week that it was looking for more time to get its financial results together, it also noted that an evaluation of the company’s ability to operate as a going concern within one year of releasing the financial results was ongoing.
Vince chief executive officer Brendan Hoffman alluded to the brand’s financial struggles, saying “in light of the difficult retail environment, we believe that it is prudent to consider a scenario in which we do not meet our financial covenants.”
For the nine months ended Oct. 29, Vince had a net loss of $511,000 versus a $3.3 million gain in the year before. Net sales came to $204.3 million, compared to $220.7 million the year before.
Under its current late filing extension, the company has until April 28 to file results for the full year and the fourth quarter.
As of January, Vince operates 40 retail stores and 14 outlets, in addition to a full e-commerce site, and is sold through 2,300 other retail locations in 40 countries. Its three largest customers are Nordstrom, Saks Fifth Avenue and Neiman Marcus.
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