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David's Bridal Inc. Issuer Credit Rating Raised To 'B-' Following Bankruptcy Emergence; New Debt Rated; Outlook Negative

  • David's Bridal Inc. emerged from Chapter 11 bankruptcy on Jan. 18, 2019, after initially filing for bankruptcy in November 2018.
  • We are raising our issuer credit rating on David's Bridal to 'B-' from 'D', reflecting significantly reduced balance sheet debt and a still fairly well-recognized brand name, tempered by our expectations for uncertainty in performance trends, given the ongoing challenging competitive bridal retail landscape and execution risk associated with key strategies post emergence.
  • We are also assigning an issue-level rating of 'B+', with a '1' recovery rating, to the company's priority $60 million term loan, and a 'B-' issue-level rating, with a '3' recovery rating, on David's Bridal's $240 million takeback term loan.
  • The negative outlook reflects the uncertainty in David's Bridal's ability to generate sustainable positive free cash flow in a highly competitive environment, despite reduced funded debt levels.
NEW YORK (S&P Global Ratings) Feb. 4, 2019—S&P Global Ratings today took the 
rating actions listed above. The ratings reflect the uncertainty in operating 
performance following the emergence from bankruptcy, but also incorporates the 
meaningful debt reduction achieved through the Chapter 11 process. We view the 
environment for David's Bridal as increasingly difficult because of increased 
competition from both traditional and new entrants, and a slow secular decline 
in customer spending for bridal gowns. The cancellation of more than 50% of 
prior funded debt results in a sustainable capital structure, although higher 
interest rates on the remaining debt and significant lease commitments result 
in a fixed-charge coverage ratio that in our view is still weak. Nonetheless, 
downside ratings risk exists if traffic trends and same-store sales fall off 
and result in an expectation for sustained negative free operating cash flow. 

The negative outlook reflects our uncertainty that David's Bridal can 
sustainably improve operating performance, including positive same-store sales 
and free operating cash flow over the next 12 months because of heightened 
competition and its recent emergence from bankruptcy.

We could lower the rating if David's Bridal is unable to demonstrate 
improvement in operating trends as planned, such that we would view the 
company's restructuring and new business strategy to be insufficient to 
support the capital structure. Under this scenario, intense competition in the 
bridal gown industry could lead to persistent traffic declines, which would 
reduce sales and margins below post emergence expectations and persistently 
negative free operating cash flow generation. Under this scenario, credit 
metrics would weaken on a sustained basis. 

We could revise the outlook to stable if David's Bridal demonstrates an 
ability to generate consistently positive free operating cash flow, while 
maintaining fixed charge ratio of 1.3x and above. This scenario would likely 
occur if operating initiatives gained traction, delivering steady growth in 
comparable store sales and stable EBITDA margins. 
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