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With David’s Bridal Filing, US Leveraged Loan Default Rate Rises stands at 1.61%

The default rate of the S&P/LSTA Leveraged Loan Index now stands at 1.61% by principal amount after David’s Bridal filed for Chapter 11 in bankruptcy court in Delaware.

With Pacific DrillingExGen Texas PowerCumulus Media, and Walter Investment Management all rolling off the 12-month calculation in November, the rate dipped to 1.44% at the beginning of this month, having closed out October at 1.92%.

david's bridalBy issuer count, the rate is now 1.56%, down from 1.79% at the end of October.

It its Disclosure Statement filed this morning, the company cited “challenging bridal retail market conditions,” including increasing competition at the lower price points from online retailers, and its substantial debt burden as reasons behind its decision to seek relief in bankruptcy court.

The filing, which was expected, came after the company announced that a restructuring support agreement had been reached with 85% of its term loan lenders and 97% of its senior noteholders, as well as its principal equity holders, on a deal to reduce the company’s debt by more than $400 million and hand ownership to senior lenders.

Pre-petition term loan lenders, which are expected to recover approximately 70.8%, would get 76.25% of the reorganized equity, while those who participate in the $60 million new-money DIP financing would get an additional 15% of the new equity, court filings show. Holders of its unsecured notes, which have an estimated recovery of 4.4%, would receive around 8.75% of the reorganized equity, in addition to warrants.

The issuer’s originally $520 million covenant-lite TLB was placed in October 2012 to back Clayton, Dubilier & Rice’s acquisition of the retailer from Leonard Green & Partners, which retained a minority stake in the business.

The company said it has sufficient liquidity to meet its business obligations, noting that it has obtained commitments for $60 million in new DIP financing from its current term loan lenders and a recommitment of its existing $125 million ABL revolving credit facility.

A confirmation hearing is set for Jan. 7 ahead of expected emergence from bankruptcy in early January. — Rachelle Kakouris

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Sears Files Ch. 11 with $300M DIP Loan; Lampert Resigns as CEO

Sears Holdings Corp. has filed for Chapter 11 in bankruptcy court in Manhattan, the company announced.

In connection with the filing, Eddie Lampert resigned as the company’s CEO, effective immediately, to be replaced by an “Office of the CEO” to manage the company’s day-to-day operations that is composed of CFO Robert Riecker and retail executives Leena Munjal and Gregory Ladley. Lampert will continue, however, as chairman of the board. In addition, the company has appointed a chief restructuring officer, Mohsin Y. Meghji, who is a managing partner of M-III Partners.

The filing, which was announced in the early morning hours, was expected. Sears had a $134 million debt payment due today on its second-lien debt that it was widely expected to miss, determining the timing, and numerous published reports last week said that Sears had hired boutique advisory firm M-III Partners to help prepare the filing and that the company was seeking DIP financing.

The company said in a news release that it “expects to move through the restructuring process as expeditiously as possible and is committed to pursuing a plan of reorganization in the very near term as it continues negotiations with major stakeholders started prior to today’s announcement.”

In connection with the filing, the company said it had commitments for $300 million in senior priming DIP financing from its senior secured asset-based revolving lenders, and that it was negotiating a $300 million subordinated DIP with hedge fund ESL Investments, the company’s largest stockholder and creditor.

Lampert is ESL’s founder and CEO.

The senior DIP is composed of roughly $189 million in revolving ABL commitments, priced at L+450, with an undrawn commitment fee of 0.75%, and a $111 million term loan subject to a borrowing base formula at L+800, according to bankruptcy court filings. Bank of America is the agent.

The company told vendors that with the DIP funding it would be able to pay them in the ordinary course of business for goods and services provided after today. Pre-petition amounts owed, however, would be repaid in the context of a reorganization plan, although some vendors would receive preferred treatment under the company’s “critical vendor motion.”

According to the court filing, some 200 vendors had stopped shipping merchandise to the company in the past two weeks.

The contemplated junior DIP, meanwhile, would be in an initial amount of $200 million, which could be upsized to $300 million at the discretion of the agent bank (which is to be determined, but will be named by ESL), and would bear interest at L+950. Cyrus Capital would also be a lender under the junior DIP, court filings show (note, however, that while it is included in the company’s DIP approval motion, the junior DIP will not be considered by the court until a second interim hearing, and could be replaced by an alternative financing transaction).

The company said in court filings that it only had a short period of time in which to negotiate the DIP because it first approached lenders only 10 days ago. The company explained that it was hesitant to approach potential lenders too far in advance because of concerns that media focus on the company would cause such inquiries to be become a self-fulfilling prophecy, adding, “In hindsight, those concerns about adverse publicity were well-founded, as discussions regarding debtor in possession financing become the subject to media reports and speculation.”

In any event, the company said its Sears and Kmart stores, along with its online and mobile platforms, are open and continue to offer a full range of products and services to members and customers.

This is significant, as news reports last week said that some of the company’s lenders were pushing for a liquidation of the company.

The company said in a news release that it intends to reorganize around a smaller store platform of EBITDA-positive stores, adding that it is currently in discussions with ESL regarding a stalking-horse bid for the purchase of a large portion of the company’s store base.

The company also said it plans to close 142 unprofitable stores near the end of the year, and that liquidation sales at these locations “are expected to begin shortly.”  The company noted these closings would be in addition to the 46 store closings that the company previously announced.

In court filings, the company said it would reorganize as a “member-centric” business.

More specifically, in terms of a reorganization path, Riecker explained in his first day declaration filed with the bankruptcy court that about 400 of the company’s stores are “four-wall EBITDA positive (before any lease concessions),” and that the company intends to sell “these and other viable stores, or a substantial portion thereof,” as a going concern pursuant to Section 363 of the Bankruptcy Code. These are the stores about which the company is in negotiations with ESL, Riecker said, adding that if a transaction were successful, the result would be “a right-sized version of the company” that not only would save the Sears and Kmart brands, but “the jobs of tens of thousands of employees.”

Additionally, Riecker said the company would market and sell certain non-core assets, such as intellectual property and specialty businesses, to help finance the Chapter 11 cases and maximize value. Riecker said the company has “moved those discussions [excluding the store closures already announced] within the confines of the Chapter 11 cases to provide all of the company’s stakeholders, as well as the court, with the opportunity to evaluate the wisdom of those transactions.”

The liquidations of the initial round of 142 store closures would net the company $42 million, Rieger said.

According to Riecker’s declaration, the company has “certain tax attributes,” including a tax basis in certain assets exceeding the value of those assets, in excess of $5 billion in net operating loss carryforwards, and tax credits of roughly $900 million, although it is unclear at this point exactly how these tax attributes would figure into any going concern sale.

The company said it formed a special committee to oversee the restructuring process that would “have decision making authority with respect to transactions involving affiliated parties.” The special committee is composed solely of independent directors, specifically, Alan Carr, Paul DePodesta, Ann N. Reese, and William Transier.

The company named Carr, a well-known advisor and attorney in the restructuring industry, to the board last week, setting off the intense media speculation about the company’s coming Chapter 11 filing. Similarly, the company noted that Transier “has extensive restructuring experience involving companies with complex capital structures and has served on special committees of independent directors responsible for overseeing restructuring processes.”

In terms of milestones, the company’s DIP provides that the company must file a reorganization plan and disclosure statement by Feb. 18, 2019, that the company obtain approval of its disclosure statement by March 25, 2019, that the company obtain confirmation of the reorganization plan by April 29, 2019, and that the plan become effective by May 14, 2019.

While these milestone deadlines should be treated with a large grain of salt at this point in the proceedings, given the reported desire of some lenders to see the company liquidated and the failure of the company’s prior restructuring initiatives to gain traction, it is worth noting that Riecker warns that “time is of the essence in these Chapter 11 cases.”

The company currently “burns a significant amount of cash—approximately $125 million per month—in the course of operating [its] business,” Riecker said, explaining that this burn rate “is due, at least in part, to the discrepancy between the company’s operational capacity, which can support a business of the company’s previous size, and the company’s current, reduced footprint that has resulted from its ongoing store closure initiative.”

Rieger said the company hopes “that this imbalance will be corrected through the purchase of the company’s viable stores, but in the meantime, these Chapter 11 cases must progress with all due speed to stem these substantial operating losses that will continue to decrease the value of the debtors’ estates.” — Alan Zimmerman

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Struggling Sears Names Distressed Advisory Expert Carr as Independent Director

Sears Holdings Corp.‘s board yesterday named Alan Carr as an independent director. Carr is managing member and CEO of Drivetrain, a distressed and restructuring advisory firm.

Carr is set to hold the position until the issuer’s 2019 annual shareholder meeting or until a successor is elected and qualified, according to a company filing.

Soon-to-mature bonds of Sears were thinly traded on news of Carr’s appointment, with the issuer’s roughly $134 million of 6.75% second-lien notes due Oct. 15 changing hands on either side of 87.5, roughly in-line with levels week-over-week.

In addition to the above-mentioned notes, Sears has $668 million of other debt maturing in the next twelve months, according to regulatory filings.

The move comes two weeks after Sears CEO Eddie Lampert’s hedge fund ESL Investments outlined a multi-pronged proposal for the distressed retailer to avoid bankruptcy, according to an amended filing with the SEC. Lambert’s Sept. 23 plan calls for the restructuring of around $1.1 billion of the company’s debt via a distressed exchange that would reduce its $5.6 billion debt burden to approximately $1.24 billion, assuming all sale proceeds are used to pay down debt, according to the filing.

Lambert’s proposal also urges the company to sell $1.5 billion of real estate as well as divest some $1.75 billion of assets, including Sears Home Services and the Kenmore appliance brand, the proceeds of which would be used to pay down debt.

As reported, Lampert earlier this year urged the ailing retailer to sell its prize assets, writing in a letter that ESL is willing to acquire the Sears Home Services division and PartsDirect business. ESL has also offered $400 million to acquire the Kenmore brand.

In terms of the previously mentioned distressed exchange, ESL has proposed that eligible holders of the ESL second-lien PIK loan due 2020 and 2019 would be offered the option to exchange their holdings for mandatorily convertible secured debt or else extend maturities with a reduced conversion price. Unsecured holders are offered the choice to swap into mandatorily convertible unsecured debt or a cash option. The aforementioned 6.75% second-lien notes due October 2018 are excluded from the proposal.

Hoffman Estates, Ill.–based Sears Holdings operates in two segments, Kmart and Sears Domestic. Sears Roebuck Acceptance Corp. operates as a subsidiary of Sears, Roebuck and Co., which itself is a subsidiary of Sears Holdings. Ratings are CCC–/Ca on Sears Holdings and CCC–/C on Sears Roebuck Acceptance Corp. — James Passeri/Rachelle Kakouris

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Retail Sector Sees August Rebound in Leveraged Loan Trading Market

Biggest Gainers/Losers – US Leveraged Loan Secondary Trading Market

aug big movers loans

Despite continued struggles by high-profile leveraged loan issuer J.C. Penney (link) during the second quarter, the long-beleaguered retail industry had a strong August, making up five of the 10 largest advancers in the loan trading market during the month, according to S&P/LSTA Loan Index.

One reason: buyer confidence continues to improve. Based on The Conference Board’s Consumer Index, sentiment reached its highest level since October 2000, with a reading of 133.4, up from 127.9 in July.

This positive backdrop, coupled with stronger overall earnings, saw several names in the industry that have struggled previously climb higher, including Neiman Marcus GroupBelkPetSmartJ. Crew, and Ascena Retail Group. Elsewhere, American Tire Distributors, a name that has been among the largest decliners after the loss of its contract with both Goodyear Tire & Rubber and Bridgestone earlier in the year, recouped some losses this month, making it among the top 10 gainers, after the company reported a 5.8% year-over-year increase in net sales for the second quarter.

About J.C. Penney. It was one of the month’s largest decliners, reporting lower-than-expected earnings, with adjusted EBITDA coming in at $105 million, 45.5% below Street forecasts, based on consensus data compiled by S&P Global Market Intelligence. The issuer’s term loan B due 2023 (L+425, 1% LIBOR floor) was quoted at 90/91.375 after the disappointing results, from a 95/95.875 level previously.- Tyler Udland

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JC Penney High Yield Debt Plunges into Distressed Territory

J.C. Penney 8.625% second-lien secured bonds due March 2025—which priced at par just five months ago—slid some 10 points in trading Thursday, marking their inaugural descent into distressed territory at 73.5, trade data show.

The move follows the release of a substantially narrower-than-expected bottom line for the struggling department-store operator, as second quarter adjusted EBITDA of $105 million clocked in 45.5% below Street forecasts, based on consensus data compiled by S&P Global Market Intelligence.

Meanwhile, J.C. Penney’s 5.875% secured notes due July 2023 were off as much as 4.75 points in Thursday trading, declining to all-time lows of 89.75, before settling in midafternoon trading to 90.75 The secured tranche was placed in June 2016 at par, as part of a $500 million print backing the pay-down of real-estate term debt.

The issuer’s B term loan due 2023 (L+ 425, 1% LIBOR floor) was quoted in a 92.375/94.125 context in morning trading, down from 95/95.875 yesterday, according to market sources.

Management also slashed the company’s full-year EPS guidance to a loss per share of $0.80 to $1, from a prior forecast of a $0.07 loss to a $0.13 gain previously—sending shares to new sub-$2 lows. Sources highlighted that the company seems to be pursuing “buying and chasing” as it looks to take substantial markdowns to balance its inventory.

J.C. Penney’s secured bonds had previously declined in May, following mixed first-quarter results and the resignation of its then-CEO Marvin Ellison, who announced plans to pursue opportunities with Lowe’s Companies.

J.C. Penney is a Plano, Tex.–based operator of more than 1,000 department stores across the U.S. — James Passeri/Tyler Udland

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Neiman Marcus Debt Rallies as Financial Results Top Expectations

Debt backing Neiman Marcus Group shot up today after the company posted financial results that bested analyst expectations due to better sales at its stores that it partly attributed to increased tourism and the oil patch recovery.

The issuer’s term loan due October 2020 (L+325, 1% LIBOR floor) was bracketing 90 this morning, up roughly two-to-three points since yesterday, sources said.

With the company remaining vague on its intentions to pay its interest in kind past the April 15 coupon date, the Neiman Marcus $628 million issue of 8.75%/9.50% senior PIK toggle notes due 2021 rallied more than eight points to a 14-month high of 68.75.

In an effort to preserve liquidity, the company previously elected to pay interest for the period to Oct. 14 in the form of more debt.

The company’s $960 million issue of 8% cash-pay notes due 2021 gained as much as 5 points, to 69.

The retailer today reported $1.48 billion in sales for its fiscal second quarter ended Jan. 27. The performance was up 6.2% from the year-ago equivalent period and above the $1.47 billion estimate cited in a note from Citi analyst Jenna Giannelli. Adjusted EBITDA for the quarter came in at $155 million, ahead of Citi’s $144 million projection and up roughly 22% from the same period last year.

Company executives in a conference call this morning cited improvements in the oil patch, which contributed to better operating results at its Texas stores, and increased tourism to its locations during the holiday season as some of the reasons behind the solid numbers.

On the call today, CEO Geoffroy van Raemdonck said the company has now recorded two straight quarters of sales increases for the first time since fiscal 2015, and that its online business now accounts for more than 34% of total revenue.

Also on the call, Chief Accounting Officer T. Dale Stapleton addressed the company’s liquidity position.

“I think we’re extremely comfortable with our liquidity providing us with sufficient funds to fund our operations as well [as] strategic initiatives,” Stapleton said, according to a transcript from S&P Global Market Intelligence. “So I think that’s one critical point. I think the second critical point is that with the maturity ladder of our debt, we don’t see the first maturities until October of 2020. And so given where we sit today, we believe that we have sufficient kind of runway to kind of think about our debt, our capital structure in a very thoughtful, deliberative and prudent way. Throughout kind of the downturn, I think we have been very active in managing our liquidity, and we will be active and proactive in managing through kind of our capital structure.”

Current CEO van Raemdonck joined the company earlier this year after Karen Katz stepped down from her post.

Corporate ratings are CCC/Caa2. — Kelsey Butler/Rachelle Kakouris

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American Greetings Nets Financing for Purchase by CD&R

American Greetings on Tuesday announced it has obtained committed financing from Barclays, Deutsche Bank, Citizens Bank, ING Capital, Bank of America Merrill Lynch, HSBC, Sumitomo Mitsui Financial Group, and KeyBanc Capital Markets to support Clayton, Dubilier & Rice’s purchase of a 60% ownership stake in the company. Further details of the financing were not yet disclosed.

The Weiss Family, which founded the company in 1906, will retain a 40% stake in the company, according to a company release. As reported, the issuer was taken private by the Weiss family in 2013, in a transaction backed by $600 million in debt financing, including a $400 million term loan and a $200 million revolving credit.

John Beeder, the current president and chief operating officer, will become chief executive officer at the close of the transaction, according to the company. Current co-CEOs Zev Weiss and Jeffrey Weiss, and current chairman Morry Weiss will sit on the board. David Scheible, an operating advisor to CD&R funds and former chairman and chief executive officer of Graphic Packaging, will become chairman of American Greetings. John Compton, a CD&R operating partner and former president of Pepsico, “will be actively involved with the business and serve on the company’s board,” the company said.

As reported, the issuer last tapped debt markets in February 2017, with a $400 million offering of 7.875% notes due 2025, with proceeds backing a tender offer for any and all of its $285 million of 9.75%/10.50% PIK-toggle notes due 2019 issued by Century Intermediate Holding Company, and the $225 million of 7.375% notes due 2021 issued by American Greetings.

The issuer’s 7.875% notes due 2025 were changing hands at roughly 102.75 on Tuesday, down 3.25 points from Thursday levels, according to MarketAxess.

S&P Global Ratings last month lowered the issuer’s outlook to negative, from stable, while keeping corporate and bond ratings unchanged at BB–, citing higher-than-expected leverage and concerns that leverage “may not materially improve, depending on the degree to which the company prioritizes debt repayment over dividends to its controlling owners, the Weiss family.” Moody’s meanwhile maintains corporate and bond ratings of B1 and B3, with a stable outlook. The issuer’s B term loan is rated BB+/Ba2.

American Greetings is a Cleveland-based designer, manufacturer and distributor of greeting cards, as well as gift packaging, party goods, and stationery products. — James Passeri

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Albertsons Debt Falls on Latest EBITDA Slump, Management Reshuffle

Debt backing Albertsons was falling today, after the Cerberus-controlled food and drug retailer again booked sharply lower quarterly earnings, with adjusted EBITDA of $429 million for the issuer’s fiscal third quarter, ending Dec. 2, down from $674.8 million for the same period last year.

Meanwhile, net sales of $13.6 billion “remained flat” over the period, according to a filing today, with $117.6 million and $95 million respective increases from fuel sales and sales from new stores and acquisitions, net of store closings, offset by a $225.3 million decline in same-store sales.

The retailer today also announced that Wayne Denningham, its president and chief operating officer, plans to retire by the end of the fiscal year, and that Albertsons has named Susan Morris as the company’s executive vice president and COO, to oversee the company’s supply chain, manufacturing, and operations functions.

Albertsons 5.75% notes due 2025 and 6.625% notes due 2024 were down three points and 2.75 points, respectively, in midday trading, falling to 87.5 and 93.25, according to MarketAxess. Meanwhile, Albertsons’ B-4 term loan (L+275, 0.75% LIBOR floor) was at a 97.5/98.5 market today, down more than a point from before the news, sources said, while the issuer’s B-5 term loan (L+300, 0.75% floor) was quoted at 97/98, a 1.5-point dip from the last session.

“We are very encouraged now that our identical store sales trends have turned positive in the fourth quarter of fiscal 2017, as our marketing and merchandising plans are taking hold, and prior year comparisons ease,” CEO Bob Miller said in a Tuesday statement. He noted that the company expects improvements to adjusted EBITDA in fiscal 2018, “as a result of $100 million in expected additional synergies from the Safeway acquisition as the SuperValu transition services agreement winds down, as well as from the implementation of $150 million of identified cost reduction initiatives.”

The company now forecasts fiscal 2018 EBITDA of roughly $2.7 billion, with expected capital expenditures for the period falling to $1.2 billion, indicating a decline of $300 million from the previous period.

Albertsons debt previously declined in October, after the food and drug retailer reported adjusted EBITDA of $485.2 million for the quarter ended Sept. 9, down from $573.7 million year-over-year, while net sales and other revenues of $13.83 billion dipped mildly over the period, from $13.86 billion.

As of Dec. 2, the issuer had no borrowings outstanding under its $4 billion ABL facility, and a total availability of roughly $3 billion net of letters of credit usage.

The food and drug retailer in May repriced all three term loans. Of note, Albertsons on Sept. 25 inked a sale-leaseback deal for 71 of its store properties for an aggregate purchase price of $705 million, net of closing costs. “After giving effect to the sale-leaseback transaction, the company owns or ground leases approximately 43% of its stores with an appraised value of $11.5 billion,” the company noted in its filing.

Albertsons is a Boise, Idaho–based U.S. food and drug retailer, controlled by Cerberus Capital Management, operating 2,323 retail food and drug stores as of Dec. 2. — James Passeri/Kelsey Butler

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PetSmart High Yield Debt Tumbles after 3Q Earnings Miss

Debt backing PetSmart was falling more deeply into distressed territory on Tuesday after the privately held pet retailer unveiled lackluster third-quarter earnings, with sources highlighting adjusted EBITDA for the period of roughly $189 million, shy of expectations and down about 34% year-over-year.

“We think this is going to go lower into distressed with retail pressures,” sources noted, highlighting negative fourth-quarter outlook chatter on the issuer’s earnings call yesterday. “People are really going to be focusing on this going forward. There’s definitely a lot of pressure.”

PetSmart 5.875% first-lien notes due 2025 and 8.875% senior notes due 2025—both of which priced at par in May, as part of a $2 billion offering backing the purchase of Chewy.com—were falling in blocks Tuesday by 4.125 points and five points, respectively, according to MarketAxess, to 81.25 and 70.

Meanwhile, the issuer’s B term loan due March 2022 (L+300, 1% LIBOR floor) was off by more than two points on the day, falling to quotes of 82.25/83.25, from bid quotes of 84.5 Monday, sources noted.

The Phoenix-based retailer has most recently been pressured by mounting market speculation over whether PetSmart could split from Chewy.com in a spin-off to sponsors, which could be impeded by restricted-payment covenants tied to the issuer’s senior debt.

Following the PetSmart’s second-quarter earnings roll-out in September, the company’s senior and unsecured debt was also downgraded on Sept. 18 by S&P Global Ratings to B and CCC+, respectively, from B+ and B–, keeping respective recovery ratings of 3 and 6 unchanged. S&P Global also lowered the issuer’s corporate credit rating to B from B+, with a negative outlook remaining in place.

“Factors contributing to our downward revisions include greater competition in the pet retailing space with mass retailers and other online retailers competing aggressively for pet food market share. We also think management turnover will complicate operational and acquisition execution,” S&P Global noted in a Sept. 18 report.

Moody’s maintains a B1 corporate credit rating on PetSmart, with a negative outlook, with Ba3 and B3 ratings on the issuer’s secured and unsecured debt, respectively. — James Passeri/Rachelle Kakouris

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Mattel Bonds Tumble on Guaranteed Debt Roll-Out, Ratings Downgrades

Bonds backing fallen angel Mattel fell today after the toy maker rolled out weakened sales guidance for the remainder of 2017, alongside plans to issue $1 billion of unsecured notes, with priority claims that effectively prime its existing unsecured bonds. The new senior notes will be marketed alongside roughly $1.6 billion in new asset-backed lending (ABL) revolving credit, under ratings that were cut again today deeper into junk territory by all three ratings agencies.

Sources noted existing bondholders would end up with the “short end of the stick” in light of the proposed debt launches. Mattel’s corporate and unsecured bond ratings were cut on Monday by S&P Global Ratings to BB–, from BB, with a negative outlook remaining in place and a 3 recovery rating assigned to the proposed new unsecured notes. However, S&P revised the recovery rating for the existing unsecured stack to 4, as existing noteholders are impaired by the ABL revolver in the capital structure and subsidiary guarantees in the new proposed notes, “which result in higher priority claims ahead of the existing notes.”

This marks S&P’s third cut to the issuer’s credit rating since July, when ratings were first cut by one notch from BBB on flagging operational metrics, and then again in October by two notches following the bankruptcy of key retailer Toys R Us in September.

Mattel 3.15% notes due 2023 and 6.2% notes due 2040 bore the brunt of the damage, sliding roughly four points and 5.5 points, respectively, to 90.5 and 93.5, according to MarketAxess. The 2040 bonds traded near 110% of par ahead of the S&P fallen-angel downgrade in October. Meanwhile, the issuer’s 2.35% notes due 2019 were off by about a point, falling to 97.8.

Moody’s today downgraded Mattel’s unsecured bonds to Ba3, from Baa3, and assigned a Ba2 corporate rating on the issuer. Fitch Ratings, meanwhile, downgraded Mattel’s issuer default rating to BB, from BBB–, and its existing senior unsecured notes to BB–, from BBB–. Fitch also assigned a BB rating to Mattel’s proposed $1 billion of senior notes.

Mattel now expects its full-year 2017 gross sales will decline in percentage by at least the mid-to-high single digits compared to 2016, in contrast with June guidance of “mid-to-high single digit revenue growth, and operating profits at, or above, 15%.”

The company today pointed to “key retail partners moving toward tighter inventory management” and challenges facing Toy Box and other underperforming brands.

“The unfavorable year-over-year gross margin experienced during the first nine months of 2017 is expected to continue throughout the fourth quarter of 2017, as a result of unfavorable product mix, higher freight and logistics expense, and lower fixed cost absorption,” the company noted in a Monday filing. “In addition, continued negative trends in top line performance for the balance of the year could result in additional gross margin deterioration as a result of higher inventory write-downs and discounts offered to clear inventory.”

The company added that it expects to achieve in 2018 a third of its projected $650 million in cost savings through 2019, while incurring about $200 million of related severance and restructuring costs between the current quarter and end of 2019.

The company’s CEO, Mary Margaret Hastings Georgiadis, on Oct. 26 emphasized that the company “will clearly not achieve the top line expectation we discussed in June,” based on lackluster quarterly earnings, in which adjusted EBITDA of roughly $227 million fell 31% shy of analyst forecasts, based on S&P Global consensus data, prompting downgrades by both S&P and Moody’s.

Mattel (NASDAQ: MAT) is an El Segundo, Calif.–based toy manufacturer. — James Passeri

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