S&P CUTS LIMITED RATING, CITING SPINOFF STRATEGY

NEW YORK — The Limited’s spinoff strategy isn’t sitting too well with Standard & Poor’s Corp.
The ratings agency said Friday that it had lowered the debt ratings of the retailer, citing its sale and planned sales of parts of its operations.
About $700 million in debt was affected. S&P’s senior debt rating on Limited was cut to triple-B-plus from single-A, and its commercial paper rating was reduced to A-2 from A-1. The ratings were placed under review on March 28.
“For many years, The Limited’s diversity of retail formats was an important source of credit support, as it helped to diminish overall business risk. However, management’s adoption of a more aggressive financial policy is now detracting from credit strength,” S&P said in a statement.
The rating agency noted that the Limited in October sold a 17 percent interest in Intimate Brands Inc., which primarily consists of Victoria’s Secret and Bath & Body Works, to raise $680 million and is expected to raise another $1.3 billion from the sale of a 60 percent interest in its World Financial Network credit card bank and the refinancing of credit card receivables.
“Because these proceeds are expected to be distributed to shareholders, bondholders will be left with diminished protection,” S&P said. S&P said a second IPO for the sale of a 15 percent stake in The Limited’s women’s apparel operations “has been postponed.”
“These operations currently will be retained along with Structure, Abercrombie & Fitch, Limited Too, Galyan’s and Mast,” S&P said.
However, a spokesman for Limited said he is “not aware that we’ve ever announced the timing of the spinoff of the business.”
The spokesman noted that Leslie Wexner, chairman and chief executive officer, said on Dec. 13 at a Wall Street meeting here that the IPO of the women’s business “would move forward when the performance of those businesses along with equity market conditions warranted it.”
Wexner had said in an interview in October he was looking for the spinoff of 10 to 15 percent of its core women’s apparel business — Limited Stores, Lerner New York, Lane Bryant and Express — to take place in spring 1996. S&P said in the statement that the rating assumes The Limited’s ownership in Intimate Brands may decline and a portion of the women’s apparel business may also be sold to the public. “Equity reductions to the 60 percent-70 percent range in spun-off subsidiaries may result in a moderate downgrading of the rating,” S&P said, adding, Intimate Brands “appears to be a more healthy credit risk on a stand-alone basis and is the bulwark for the triple-B-plus rating.”

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