BDF Acquisition Corp. Downgraded To 'CCC+' From 'B' On Expected Weak Performance, Liquidity Pressure; Outlook Negative

  • U.S.-based specialty furniture retailer BDF Acquisition Corp.'s (Bob's Discount Furniture) operating performance is expected to substantially decline as a result of the coronavirus pandemic and weaker economic outlook, leading to cash burn amid store closures and a sharp increase in leverage in fiscal 2020.
  • As a result, we are lowering our issuer credit rating two notches to 'CCC+' from 'B'.
  • We are also lowering our issue-level rating on the company's term loan B by two notches to 'CCC+'; the '3' recovery rating is unchanged.
  • The negative outlook reflects our view that if store closures extend for a prolonged period, BDF's liquidity may be inadequate to support the business.
NEW YORK (S&P Global Ratings) March 27, 2020--S&P Global Ratings today took the rating actions listed above.
We believe store closures and social distancing mandates associated with the coronavirus will significantly weaken BDF's performance.  BDF announced it would temporarily close all stores starting March 21, 2020, indefinitely. The company will continue to operate its online channel, which generated less than 10% of total sales in fiscal 2019. Thus we believe BDF sales will decline around 90% while its stores do not operate. At this time, we do not expect significant acceleration in online sales that would replace a meaningful portion of lost in-store sales, because we believe consumers will reduce discretionary spending given the weakened macroeconomic outlook. We expect a significant decline in revenues and EBITDA, leading to leverage well above our previous expectations for the high-4x area.
The negative outlook reflects the risk BDF may come under a liquidity crunch, given expected declines in revenue and store closures stemming from the coronavirus pandemic.
We could lower our ratings if we believe it is increasingly likely BDF will face a liquidity crunch in the next 12 months. This could occur with prolonged store closures and no clear route for improving the company's liquidity position.

We could raise the rating if we are confident the company will have adequate liquidity to weather store closures. This could occur if it executes a transaction to improve its liquidity position or if we expect stores to reopen soon.
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