Prestige Brands Inc. Outlook Revised To Stable From Negative On More Conservative Financial Policies, 'B+' ICR Affirmed


  • We forecast that U.S.-based Prestige Brands Inc. will continue to use its free cash flow for debt repayment, causing its leverage metric to fall below 5.5x by fiscal year-end 2019 (March 31, 2019) before improving to less than 5.0x in fiscal year 2020.
  • We are revising our outlook on Prestige to stable from negative and are affirming our 'B+' issuer credit rating on the company.
  • At the same time, we are affirming our 'BB' issue-level rating on the company's secured term loan B, raising our issue-level rating on its senior unsecured notes to 'B' from 'B-', and revising our recovery rating on the unsecured debt to '5' from '6'. The '5' recovery rating indicates our expectation for modest recovery (10%-30%; rounded estimate: 25%) in the event of a default due to Prestige's recent debt repayment, which has reduced the amount of debt outstanding at emergence under our simulated default scenario.
  • The stable outlook reflects the company's more conservative financial policies and our forecast that it will continue to deleverage.
CHICAGO (S&P Global Ratings) Jan. 4, 2019—S&P Global Ratings today took the 
rating actions listed above. The outlook revision reflects our forecast that 
Prestige will generate close to $100 million of free cash flow in the second 
half of fiscal year 2019 and use it for debt reduction, which will cause the 
company's S&P adjusted leverage metric to decline to 5.4x (from 5.5x as of 
Sept. 30, 2018) before improving below 5.0x in fiscal year 2020. This is 
despite our expectation that Prestige's EBITDA will decline by over 5% in 2019 
and remain flat in 2020 due to ongoing retailer destocking and weak traffic.

The stable outlook on Prestige reflects our expectation that its credit 
measures will improve over the next year as it uses substantially all of its 
free cash flow for debt repayment, notwithstanding its lackluster 
profitability. We forecast that the company's leverage will decline to about 
5x over the next 12 months before improving to the high 4x area by March 31, 
2020.

We could raise our rating on Prestige if the company demonstrates more 
conservative financial polies that lead us to believe it will sustain leverage 
of between 4.0x and 4.5x while simultaneously stabilizing its profitability, 
which has weakened due to retail inventory destocking, higher freight costs, 
and packaging design changes.

We could lower our rating on Prestige if its financial policy becomes more 
aggressive than we expect, including undertaking large-scale acquisitions or 
share buybacks that cause it to sustain leverage of more than 6x. We could 
also lower the rating if an acceleration in retailer inventory destocking, a 
material increase in input costs, or a significant loss of market share to 
competitors (most likely private-label brands) leads to a substantial drop in 
the company's profits or if these potential factors cause us to unfavorably 
reassess Prestige's competitive position.
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