Bluestem Brands Inc. Downgraded To 'CCC-', Outlook Negative On Upcoming Revolver And Term Loan Maturities

  • Minnesota-based online retailer Bluestem Brands Inc.'s operating performance remains weak and, given that its capital structure is now current, we believe there is an increased risk it will pursue a below-par debt restructuring in the next six months.
  • We are lowering our issuer credit rating on the company to 'CCC-' from 'CCC'.
  • At the same time, we are lowering our issue-level rating on Bluestems's term loan to 'CCC-' from 'CCC'. Our '4' recovery rating remains unchanged, indicating our expectation for average (30%-50%; rounded estimate: 45%) recovery in the event of a default.
  • The negative outlook reflects that we will lower our rating on Bluestem if the company announces a below-par distressed exchange or restructuring.
NEW YORK (S&P Global Ratings) Jan. 28, 2020--S&P Global Ratings today took the rating actions listed above.
Bluestem's revolver and term loan are due this year and we believe the likelihood that the company will undertake a restructuring in the near term has increased.  The company's $200 million asset-based lending (ABL) facility matures in July and its term loan (roughly $400 million outstanding) comes due on Nov. 7, 2020. In our view, Bluestem does not have a clear refinancing plan and we believe it is increasingly likely that the company will pursue a holistic debt restructuring to address its maturities given its weak operating performance. If the company pursues a restructuring or exchange that provides its lenders with less than they were originally promised under the security, we would view it as distressed and tantamount to a default.
The negative outlook on Bluestem reflects our view that the company may pursue a distressed debt exchange or restructuring in the next six months. The outlook also incorporates our expectation that the company's operating performance will remain weak amid continued pressures in the retail industry, and our view of liquidity as less than adequate.
We could lower our rating on Bluestem if it announces a distressed restructuring or exchange.
We would raise our rating on Bluestem if we believe it is unlikely that the company will restructure its debt in the next six months even if its capital structure remains unsustainable over the long term.
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