S&P REDUCES DEBT RATING ON COUNTY SEAT STORES
NEW YORK — Standard & Poor’s Corp. downgraded the debt ratings of County Seat Stores, citing “severely reduced financial flexibility.”
“Expectations for the fourth quarter are poor, given the overall weak retail environment, especially for mall-based apparel stores, like County Seat,” the rating agency said Wednesday.
County Seat’s corporate rating was cut to triple-C-plus from single-B-minus. Its $105 million 12-percent senior subordinated notes were lowered to triple-C-minus from single-B-minus. Both ratings were also put under review for a further downgrade.
The Dallas-based chain operates about 730 stores specializing in jeans and related accessories. S&P noted that County Seat reported that for the nine months ended Oct. 28, earnings, before interest, taxes, depreciation and amortization before nonrecurring charges, declined over 50 percent to $10.7 million. It was not enough to cover cash interest expense of $18.2 million.
S&P also noted that County Seat’s cash flow problems triggered covenant violations in its bank agreement, but these agreements were amended for the third and fourth quarter. However, further amendments will be needed for the first half of 1996.
“Excess availability under the bank agreement during peak borrowings was extremely limited, further pressuring liquidity,” S&P said. To operate profitably over the long term, County Seat is expected to modify its capital structure, which may include reducing its obligations under its preferred stock, S&P said.
“Although management is considering several longer-term steps to conserve cash and improve profitability, including dramatically slowing store openings, renegotiation of the bank facility over the next quarter will be essential to maintaining adequate liquidity,” S&P said.
S&P said its review will focus on County Seat’s progress in addressing its capital structure and liquidity issues
S&P’s ratings downgrade on County Seat follows a similar cut by Moody’s Investor Service on Dec. 27.