Premier Brands Group Holdings LLC Outlook Revised To Negative From Positive, 'B-' Issuer Credit Rating Affirmed

  • We believe that weakening economic activity and consumer spending, combined with mass retail store closures in major cities, will negatively affect U.S. jeans, apparel, and jewelry wholesaler Premier Brands Group Holdings LLC.
  • Although the company's leverage is relatively moderate in the low- to mid-3x area, we expect that the effects of the coronavirus pandemic will exacerbate its already high profit volatility and pressure its cash flow.
  • Therefore, we are revising our outlook on Premier to negative from positive and are affirming our 'B-' issuer credit rating on the company.
  • The negative outlook reflects our belief that the pandemic will significantly reduce Premier's sales and cash flow. In addition, we believe the company's leverage will likely rise to at least the high-4x area, which would pressure its covenants and cash flow.
NEW YORK (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions listed above.
The outlook revision reflects our belief that weakening economic and consumer spending activity, combined with mass retail store closures, will negatively affect Premier's EBITDA and cash flow.  The coronavirus pandemic has led to a global slowdown and many retailers have responded to the fears of contagion by closing stores across the U.S. We estimate that Premier's leverage was in the low- to mid-3x area as of the end of 2019, which we view as moderate relative to that of its similarly rated peers. Many of Premier's large retail customers, including Walmart, Costco, and Sam's Club, are considered essential businesses and will remain open even in cities with strict lockdowns. Still, we believe consumers shopping in these stores will primarily be focused on purchasing food and other essential goods rather than shopping for apparel.
The negative outlook reflects our belief that the pandemic will significantly affect Premier's sales and cash flow. Specifically, we believe the company's leverage will likely increase to at least the high-4x area, which will pressure its covenants and cash flow.
We could lower our ratings on Premier if its EBITDA falls significantly, such that its EBITDA interest coverage metric declines to the mid-1x area, or its liquidity becomes strained. We could also lower our rating if we believe the company will breach its total leverage covenant or that its free cash flow will remain negative for a prolonged period.
We could revise our outlook on Premier to stable if we are confident the decline in its demand will be mild enough that its free cash flow will remain positive and it will sustain interest coverage in at least the high-1x area and adequate liquidity.
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