Why this matters: Fitch has previously said that the leveraged loan default rate for the retail sector was projected to fall to its lowest level since 2016.
- Across the board, large bankruptcies fell from 245 in 2020 to 121 last year, according to bloomberg
yes butNot all retailers are out of the woods, thanks to that swirl of factors.
state of play: The rating agencies are eyeing apparel retailers Tailored Brands (owner of Men’s Warehouse), Boardriders, J.Jill and Belk. They’re also eyeing Isagenix, a multi-level marketer of dietary supplements, and discount 99 cents-only stores.
- These companies are either rated at or below Caa1 (Moody’s), CCC+ (S&P) or appear on Fitch’s “Top Market Concern Loans” watchlist.
- For Moody’s, the CAA’s rating indicates “very high credit risk”. For the S&P, a CCC rating indicates vulnerability to and dependence on current economic conditions. To be on Fitch’s watchlist, several negative factors must be counted against you
Second aspect: “Consistent brands continue to see positive momentum … we outperformed our business plan in the third quarter, delivered strong year-over-year revenue and EBITDA growth, and are about our trajectory as we enter the new year.” remains incredibly optimistic,” the company said in an email.
- Boardriders, a portfolio company of Oaktree Capital Management, and parent company of action sports brands Quicksilver and Billabong, as well as department store chain Belk, a portfolio company of Sycamore Partners, declined to comment.
- Other companies did not respond to requests for comment.
- Note that J.Jill was upgraded from Caa2 to Caa1 by Moody’s in October due to improved operating performance and positive EBITDA.
By numbers: According to Fitch, the leveraged loan default rate stood at 4.4% as of mid-December, a huge improvement from 16.7% at the end of 2020. The agency estimates that the rate will drop further to 3% by the end of this year. ,
- A default rate in the high single digits means that an area is distressed.
Bottom-line: According to David Silverman, a retail analyst at Fitch, there are still plenty of challenges ahead for retailers, yet it’s too early to tell what Omicron’s eventual impact will be.