PE-backed Payless is seen restructuring debt within a year: S&P

Suppressed trading prices on the company’s debt “could culminate in a potential debt restructuring” within the next year, Andrew Bove, S&P credit analyst, said in a Feb. 1 report.

The capital structure at the Topeka, Kansas chain, which operates more than 4,400 stores in more than 30 countries and the payless.com website, is “unsustainable,” S&P said.

Bove cut his corporate credit rating on Payless to CCC from B- and the outlook is negative.

He also cut the issue-level rating on Payless’s first-lien term loan to CCC from B- and on the second-lien term loan to CC from CCC.

He has a four recovery rating on the first-lien term loan based on his expectation of an average recovery in the event of default, at the low end of 30 percent to 50 percent. His six recovery rating on the second-lien term loan reflects his expectation for negligible recovery — 0 percent to 10 percent — in the event of default.

A restructuring might prompt S&P to cut the corporate rating to CC, Bove said.

While “unlikely,” S&P “could raise the ratings if the company meaningfully strengthens performance and our view of its standing in [the] credit market improves,” the analyst said.

“We would also need to believe that the prospects for a debt restructuring are unlikely.”