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Fitch Affirms Burlington Coat Factory's IDR at 'B-'; Revises Issue Ratings; Outlook to Negative
CHICAGO-(Business Wire)-April 30, 2008 - Fitch Ratings has affirmed Burlington Coat Factory Warehouse Corp.'s (BCF) Issuer Default Rating (IDR) at 'B-' and the $900 million term loan at 'B/RR3.' In addition, Fitch has taken the following rating actions:
—$800 million asset-based revolver revised to 'B+/RR1' from 'B+/RR2';
—$305 million senior unsecured notes downgraded to 'CCC/RR6' from 'CCC+/RR5';
—$99 million senior discount notes downgraded to 'CCC-/RR6' from 'CCC/RR6'.
BCF had approximately $1.4 billion of debt outstanding as of March 1, 2008. The Rating Outlook has been revised to Negative from Stable.
The affirmation of the IDR reflects BCF's brand recognition as a national discounter of quality apparel and home products, positive free cash flow generation and adequate liquidity. The ratings also consider BCF's weakening operating results and high leverage following the April 2006 LBO as well as intense competition in the apparel and home furnishings segments. The revised Outlook reflects Fitch's concern that continued declines in comparable store sales would further pressure BCF's operating performance and credit metrics in the near to intermediate term given the challenging operating environment. The downgrades of the senior unsecured notes and senior discount notes reflect a revised recovery analysis described below.
BCF is nationally recognized with 396 stores in 44 states and $3.4 billion in revenues in the last twelve months (LTM) ended March 1, 2008. The company's business is seasonal with approximately 50% of revenues occurring between September and January. BCF generated LTM positive free cash flow of $32 million and had $48.2 million of cash and $422.4 million of availability under its $800 million credit facility as of March 1, 2008. Fitch expects BCF will have adequate liquidity to meet its near-term capital and debt service requirements.
For the first three quarters of fiscal 2008 which ended March 1, 2008, quarterly comparable store sales declines widened compared to a decline of 2.2% in fiscal 2007. BCF posted comparable store sales of -2%, -8% and -6%, in the first, second and third quarter of fiscal 2008, respectively. Despite initial markup improvements, BCF's LTM EBITDA margin decreased by 70 basis points to 7.2% reflecting the de-leveraging of selling, general and administrative (SG&A) expenses. This caused LTM total adjusted debt/EBITDAR to increase slightly to 6.6 times (x) compared to 6.3x in fiscal 2007. LTM interest coverage, defined as EBITDAR/interest expense plus rent, was essentially flat at 1.4x versus 1.5x over the same period. While management has been paying down debt with excess cash flow, Fitch expects that continued weakness in comparable store sales and operating margins would limit the company's ability to reduce debt and further pressure credit metrics.
The Recovery Ratings and notching in the debt structure reflect Fitch's recovery expectations in a distressed scenario. The asset-based revolver is secured by a pledge of inventory and accounts receivable and is rated 'B+/RR1', reflecting outstanding recovery prospects. Despite the outstanding recovery prospects, Fitch is not upgrading the rating given the declining fundamental trends and the revision in the Rating Outlook to Negative from Stable. The term loan is secured by property and is rated 'B/RR3', reflecting good recovery prospects. The unsecured senior notes at the operating company level are guaranteed by the holding company and its current and future restricted subsidiaries. These notes are rated 'CCC/RR6', reflecting poor recovery prospects. The unsecured senior discount notes are structurally subordinated at the holding company level. They are rated 'CCC-/RR6', reflecting poor recovery prospects in a distressed case and are one notch below the senior notes.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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. The issuer did not participate in the rating process other than through the medium of its public disclosure.
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