Reuters logo
Fitch Downgrades Novartex IDR to 'C'; Super Senior Debt on RWP
March 27, 2017 / 3:30 PM / 7 months ago

Fitch Downgrades Novartex IDR to 'C'; Super Senior Debt on RWP

(The following statement was released by the rating agency) LONDON/PARIS, March 27 (Fitch) Fitch Ratings has downgraded French apparel and footwear retail group Novartex SAS's (Vivarte) Long-Term Issuer Default Rating (IDR) to 'C' from 'CC'. At the same time, the agency has placed Vivarte SAS's super senior debt instrument rating of 'CCC-' on Rating Watch Positive (RWP) and affirmed Novarte SAS's reinstated debt at 'C'/RR6 (0%). The IDR downgrade to 'C' follows Vivarte's public announcement of a debt restructuring plan that Fitch views as a distressed debt exchange (DDE) event. Following its DDE criteria, Fitch will downgrade the IDR to Restricted Default ('RD') upon the completion of the debt restructuring. Fitch will likely assign an appropriate IDR for the issuer's post-exchange capital structure, risk profile and prospects. The IDR will reflect Fitch's assessment of Vivarte's new corporate governance, liquidity sources available to fund its turnaround plan and the certainty of near-term material progress in EBITDA generation. The Instrument rating on Novarte SAS's reinstated debt will likely be withdrawn if it is exchanged into equity in its entirety, while the surviving super senior debt instrument may benefit from the post-restructuring capital structure and EBITDA profile. KEY RATING DRIVERS Debt Restructuring: The debt restructuring agreement includes the full conversion of Novarte SAS's reinstated debt (EUR846 million including PIK interests) into equity and the extension of the maturity of the remaining debt ("new money"; EUR874 million as of 31 December 2016 including PIK interests) by two years. Any anticipated writedown is consistent with a 'C' rating, the definition of which includes the formal announcement of a distressed debt exchange. Expected Debt Recoveries: Novarte SAS's reinstated debt 'C'/'RR6'/0% rating reflects expected full writedown through the debt restructuring. Fitch anticipates withdrawing this rating when the instrument's conversion to equity is completed. The RWP on the super senior debt instrument rating reflects Fitch's view that its Recovery Rating could be in the 'RR4' range (implying no notching from the IDR) and Novartex SAS's post-restructuring IDR not lower than 'CCC'. Reduced Enterprise Value: A Recovery Rating of 'RR4' would result from slightly lower post-restructuring EBITDA and distressed multiple than the ones used in our previous analysis (EUR90 million post distress sustainable EBITDA down from EUR100 million, and 4.5x multiple down from 5.0x). Our revised assumptions result from the group's smaller scale after asset disposals and store closures, as well as the likely loss of attractiveness among potential buyers following recurring turnaround failures.. DERIVATION SUMMARY NA KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - materialisation of DDE on the announced terms; - disposal of Chevignon, Pataugas, CVC and Kookai in FY17 (financial year ending 31 August 2017); Merkal, Naf Naf and Andr? in FY18 with total FY17-FY18 cash proceeds of approximately EUR50 million; - low, positive like-for-like sales growth for remaining businesses reflecting some positive impact from management's turnaround initiatives; - progressive recovery in EBITDA margin towards 7% in FY19 (FY16: 2.4%); - capex above EUR100 million in FY17 due to implementation of the core operational restructuring plan, falling to EUR80 million in both FY18 and FY19. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action There are no upgrade sensitivities at this time; the existing capital structure will cease to exist upon completion of the restructuring Future Developments That May, Individually or Collectively, Lead to Negative Rating Action Execution of the DDE LIQUIDITY Adequate Near Term Liquidity: Vivarte has EUR216 million reported cash and cash equivalents (of which EUR100m which Fitch considers as not readily available for debt repayments) on balance sheet at end-December 2016 and should not experience any liquidity issue ahead of the announced debt restructuring. FULL LIST OF RATING ACTIONS Novartex SAS - Long-Term IDR: downgraded to 'C'; Vivarte SAS - Super senior debt ("new money"): 'CCC-'/'RR4' (47%) placed on RWP; Novarte SAS - Senior debt ("reinstated debt"): affirmed at 'C'/'RR6' (0%); Contact: Principal Analyst Louise Liu Analyst +44 20 3530 1660 Supervisory Analyst Anne Porte Director +33 1 44 29 91 36 Fitch France SAS 60 rue de Monceau 75008 Paris Committee Chairperson Ed Eyerman Managing Director +44 20 3530 1359 Summary of Financial Statement Adjustments Readily Available Cash: At 31 August 2016 Fitch estimated EUR100 million of the group's reported cash and cash equivalents as restricted, required to fund the group's intra-year working capital needs. The amount is likely to decrease in FY17 due to working-capital optimisation measures, the planned disposal of several brands, and the full-year impact of past store closures. Operating Leases: Fitch adjusts the debt by adding a multiple of 8x of yearly operating lease expense related to long-term assets (EUR297.8 million in FY16). Funds from Operations (FFO): Fitch excludes from FFO what it estimates to be one-off cash costs related to the ongoing operational restructuring (EUR28.4 million in FY16). Free Cash Flow (FCF): Fitch excludes from its FCF calculation all cash flows related to discontinued activities (- EUR85.3 million in FY16) in order to better assess FCF from continuing operations. Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Distressed Debt Exchange (pub. 08 Jun 2016) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 21 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021153 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below