On December 14, 2017, Moody’s Investors Service downgraded the corporate family rating and senior secured first lien term loan rating for TOMS Shoes, LLC, each to Caa3 from Caa2. The Company’s Caa2-PD probability of default rating was affirmed. According to Moody’s, the downgrades reflect Moody’s estimate of a below average family recovery rate in a potential event-of-default scenario as a result of the Company’s weak earnings performance. The affirmation of the PDR incorporates the interim liquidity support provided by the recent $18 million cash infusion from the Company’s shareholders. The cash infusion was used to support TOMS working capital needs in the third quarter of 2017. Moody’s further states that the Caa3 CFR reflects Moody’s view that TOMS’ capital structure is unsustainable at present and the probability of deleveraging to a sustainable capital structure in a challenging apparel retail environment remains low. In addition, Moody’s believes that recovery rates are below average. Read more on distressed companies.
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