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Calceus Acquisition Inc. (Cole Haan) Ratings Put On CreditWatch Negative Due To Fallout From COVID-19 Pandemic

  • Given the extreme financial market volatility caused by the COVID-19 pandemic, we believe that U.S. based-Calceus Acquisition Inc. (Cole Haan) will not be able to complete its IPO as planned in the near future.
  • Furthermore, the unprecedented measures implemented to contain the spread of the virus have resulted in Cole Haan and its major customers closing all of their stores in the U.S., likely through April and possibly into May.
  • As a result, we are taking all of our ratings on the company off of CreditWatch with positive implications and placing them on CreditWatch with negative implications.
  • The CreditWatch placement reflects the potential for a lower rating over the next few months due to heightened uncertainty regarding the impact of the pandemic and a U.S. recession that would strain Cole Haan's credit metrics and liquidity position. We could leave the ratings on CreditWatch for longer than expected due to the uncertainty and volatility created by current conditions.
CHICAGO (S&P Global Ratings) April 10, 2020—S&P Global Ratings today took the rating actions listed above. The revision of the CreditWatch placement to negative from positive reflects our view that the COVID-19 pandemic has reversed the company's trajectory for at least the next 12 months. Calceus Acquisition Inc.'s (Cole Haan's) revenue was growing in the double-digit percent area, and the company was preparing for an IPO before the coronavirus had spread to the U.S. Cole Haan's fiscal fourth quarter, ending May 2020, coincides with the countrywide shutdown of nonessential businesses aimed at slowing the spread of the virus. As a result, this quarter will bear the brunt of the impact from retail store closures. All of Cole Haan's own retail stores and its key wholesale customers, such as Nordstrom, have closed all of their North American stores. The company's digital channel remains open--and demand is healthy in that channel--but because it represents only about 30% of the company's overall revenue, it will not offset the lost sales from the closed brick-and-mortar stores. Additionally, we expect the first half of Cole Haan's next fiscal year, ending May 2021, will be very weak as well, even as stores reopen, because wholesale customers will no longer be placing spring and summer orders, and they will likely reduce orders for fall 2020. We estimate that the company could see revenue drop 50% in the next two quarters, with recovery beginning in the second half of next fiscal year. In addition, we expect margins will also be hurt because the industry will be highly promotional as retailers try to liquidate unsold inventory. Longer term, key retailers' potential inability to recover from the fallout of the pandemic and a recession could further impair Cole Haan's recovery in fiscal 2021 and into 2022, which could lead to adjusted leverage increasing to above 7x and sustained weak cash flow generation.
The CreditWatch placement with negative implications reflects the potential for a downgrade over the next few months. However, given the uncertainty around the duration of the outbreak, including the potential for it to recur after the summer, the ratings could remain on CreditWatch for a longer-than-normal period. We expect to resolve the CreditWatch placement after we assess the severity and duration of the weaker market conditions on Cole Haan's credit metrics and cash flow.
Calceus Acquisition Inc. was formed in 2012 following Apax Partners' purchase of Cole Haan from Nike Inc. It is a U.S.-based designer, marketer, and distributor of premium men's and women's dress and casual shoes, handbags, and accessories. The company generates about 85% of its sales in the U.S. and the rest abroad, mostly in Japan.

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