CD&R’s David’s Bridal debt load unsustainable: Moody’s

Clayton, Dubilier & Rice-backed David’s Bridal Inc faces margin pressure from increased competition despite efforts to turn around the 310-store bridal chain as it works to manage its $767 million debt load, according to Moody’s Investors Service.

CD&R purchased David’s Bridal Inc in 2012 from Leonard Green & Partners. The chain was valued a $1.05 billion at the time.

Same-store sales at the Conshohocken, Pennsylvania company have been flat or lower over the past three years, with credit agreement EBITDA off by 26 percent since its peak in 2012, according to a January 29 downgrade from Moody’s .

The management team led by CEO Pamela Wallack, a former Gap Inc executive brought on board about three years ago, has made “substantial efforts” to bring back traffic through frequent $99 dress events, expanded dress assortments, an overhaul of the digital platform and investments in the sales team and infrastructure, Moody’s said.

But the company underperformed relative to budget in 2013, 2014 and through the third quarter of 2015, Moody’s said.

Moody’s analyst Raya Sokolyanaska said David’s Bridal faces an unsustainable capital structure and uncertainty around its ability to turn around its operating performance.

“Earnings have deteriorated since the 2012 leveraged buy-out as a result of operational missteps including moving its focus away from the core lower-end customer, increased competition, and catch-up investment in digital presence, inventory management and product development,” Sokolyanaska said in a note to clients.

However, David’s Bridal holds adequate liquidity and doesn’t face maturities until an October, 2017 asset based revolver expiration. One possibility is a sponsor purchase of debt at a discount, Moody’s noted.

David’s Bridal is operating with an adjusted debt level of about 7.5x EBITDA. The company’s debt load includes a $497 million senior secured bank facility due 2019 and $270 million in senior unsecured bonds due 2020.

Moody’s cut its overall corporate rating on David’s Bridal to Caa1 from B3. Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest, according to Moody’s definitions. Debt with a B rating are considered speculative and subject to high credit risk.

A spokesman for Clayton, Dubilier & Rice declined to comment.

Action Item: David’s Bridal company information, http://bit.ly/1PujZBx

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