Ascena Retail Group took issue with the S&P characterizing the company’s repurchase of certain debt as “distressed and tantamount to default given the company’s weak credit profile.”
“As previously stated publicly, the Ascena board and management team continue to take proactive actions designed to optimize the company’s balance sheet. Bankruptcy is not being considered,” according to the retailer, whose brand portfolio includes Ann Taylor, Justice and Lane Bryant. “The company remains in full compliance with all of its obligations under its financing agreements and intends to remain so.”
The S&P’s credit rating downgrades Thursday prompted Ascena’s statement.
The credit ratings firm downgraded the issuer credit rating on Ascena to “SD” from “CCC” on the distress repurchase and lowered the issue-level ratings on the term loan due August 2022 to “D” from “CCC”. The “SD” rating reflects S&P’s opinion of selective default. The ratings firm also said it would likely raise the issue-level rating back to the “CCC” category “in the coming days to reflect the risk of a conventional default.”
Ascena recently repurchased $112 million of the aggregate principal of its outstanding 2022 term loan facility at 37 percent below par in two separate transactions. In determining that a lowering of the ratings was necessary, S&P also took into account the “increasing operating challenges in an intensely competitive retail apparel industry.”
The retailer attempted to explain S&P’s actions and detail its own path forward.
The rating change by S&P represents a “technical action” connected to the debt repurchase and “is unrelated to its financial or operational performance, or strategic path forward,” Ascena said, reiterating that it has “significant liquidity, with over $600 million in cash and revolver availability as of the end of the second quarter,” essentially what it told investors when it posted earnings results.
“As Ascena navigates through the current macroeconomic environment, the company is proceeding with a clear focus on Premium, Plus and Kids segments by executing strategies that are designed to ensure long-term relevance and differentiation of the company’s brands and ultimately drive the long-term value of the business,” the company said.
In addition to Ann Taylor, Lane Bryant, and Justice, Ascena operates the Loft and Catherines nameplates, among others.