On December 2, 2016, S&P Global Ratings lowered its corporate credit rating on Payless Inc. to B- from B, its first-lien term loan rating to B- from B and its second-lien term loan rating to CCC from CCC+. “The downgrade reflects our expectation that competition in the value footwear segment will cause continued weak traffic trends and pressure on profitability over the next 12-24 months, which we believe will result in persistently negative free operating cash flow over that time period,” said credit analyst Andrew Bove. “In addition to industry headwinds, merchandising at Payless has been ineffective, and this combined with unfavorable weather has resulted in weak sales trends and decreased customer traffic. The discount shoe category has become increasingly competitive in recent years, and we believe off-price competitors like TJX and DSW have taken some market share from Payless over that time period….”
On December 8, 2016, S&P Global Ratings lowered its corporate credit rating on the rue21, inc. to CCC from B-, its term-loan facility rating to CCC from B- and the issue-level rating on its senior unsecured notes to CC from CCC. “The downgrade reflects our expectation for continued weak operating performance and weakened liquidity. rue21’s fiscal third quarter results were weak with negative comparable-store sales and its trailing-12-month adjusted EBITDA margins have fallen nearly 400 basis points year over year because of increased promotional activity (to attract customer traffic) and sales deleveraging,” said credit analyst Mathew Christy. “The weak operating performance has resulted in significant negative free operating cash flow through the first nine months of the fiscal year and meaningful borrowing on its $150 million asset-based lending (ABL) facility.” Read more on distressed companies.
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