U.S.-based dollar store chain 99 Cents Only Stores LLC has announced a proposed amend and extend transaction to its first-lien term loan




  • US-based dollar store chain 99 Cents Only Stores LLC has announced a proposed amend and extend transaction to its first-lien term loan, which we would view as a distressed exchange, if completed.
  • We are lowering our corporate credit rating on 99 Cents to 'CC' from 'CCC+'. We are also lowering the issue-level rating on the company's first-lien debt to 'CC' from 'CCC+'.
  • The negative outlook reflects our expectation that we could lower the corporate credit rating to 'SD' (selective default) and the affected issue-level rating to 'D' if the company completes its loan modifications as planned.
  • At the same time, we lowered our issue-level rating on the company's 
    first-lien debt to 'CC' from 'CCC+'. The 'CCC-'rating on the company's 
    unsecured notes is unaffected as it is not subject to an exchange offer at 
    this time. The recovery ratings on the company's debt are unaffected and speak 
    to the risks of a conventional default, not an exchange as is contemplated in 
    this case. 
    
    The downgrade reflects our view that 99 Cents Only's proposed amendment to its 
    first-lien term loan, if completed, would constitute a distressed exchange and 
    be tantamount to default. The announced proposal seeks to extend the maturity 
    of the company's first-lien term loan by three years, increase the interest 
    rate by 1% and reallocate approximately $130 million of the loan held by the 
    company's financial sponsors to a new second-lien term loan facility that 
    would pay interest in kind. The announcement also indicates that the proposed 
    term loan maturity will spring back to January 2019 if a certain percentage of 
    its existing senior notes due 2019 remain outstanding at that time. 
    
    The negative outlook reflects our expectation that, if the company completes 
    the transaction as announced, we will lower the corporate credit rating to 
    'SD'  and the issue-level rating on the first-lien term loan to 'D'. Shortly 
    thereafter, we would raise the corporate credit rating to a level that 
    reflects the ongoing risk of a conventional default or future distressed 
    exchanges.