NEW YORK — Standard & Poor’s affirmed its triple-B corporate credit rating on The Warnaco Group following the company’s announcement on Wednesday that it has reached an agreement in principle to acquire Designer Holdings Ltd. for stock valued at $354 million.
The rating agency said Warnaco’s ratings outlook is positive. S&P said it may raise the rating on Warnaco if the firm continues to generate good profitability and meets growth targets while maintaining a moderate financial profile.
“The acquisition of Designer Holdings diversifies Warnaco’s product line and adds a successful jeanswear license,” said S&P. However, the agency said it views the acquisition as increasing risk, since jeanswear is more subject to fashion cyclicality than Warnaco’s mostly basic intimate apparel.
Still, the rating agency said, Warnaco’s rating is based on the ongoing success of its core intimate apparel unit and continuing growth initiatives.
S&P placed on CreditWatch with positive implications its double-B-minus corporate credit rating on DH and its single-B rating on Designer Finance Trust’s $120 million convertible trust originated preferred securities. The securities are guaranteed by Designer Holdings, S&P said.
The rating agency said it will raise the corporate credit rating to triple-B upon completion of the deal, “to reflect the credit quality of the combined entity, and the rating will subsequently be withdrawn.”
Linda J. Wachner, chairman and chief executive of Warnaco, reached at her offices Sunday with Arnold Simon, ceo of DH, said the deal was progressing smoothly, despite reports late Friday that the two had had a falling out.