RPT-Fitch affirms & withdraws Bon-Ton's ratings
May 14 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed and withdrawn the following ratings on The Bon-Ton Stores, Inc. (Bon-Ton) and its subsidiaries:
The Bon-Ton Stores, Inc.
--Long-term Issuer Default Rating (IDR) at 'B-'.
The Bon-Ton Department Stores, Inc.
--IDR at 'B-';
--$675 million senior secured credit facility at 'BB-/RR1';
--Second lien secured notes at 'CCC+/RR5';
--Senior unsecured notes at 'CCC/RR6'.
Bonstores Realty One and Two, LLC
--IDR at 'B-';
--$225 million mortgage loan facility at 'B/RR3'.
The Rating Outlook has been revised to Stable from Negative.
Fitch has decided to discontinue the ratings, which are uncompensated. Bon-Ton's ratings incorporate the recent improvement in comparable store sales trends (comps) and the refinancing and paydown of its 2014 maturities, offset by weak operating metrics and high leverage. Comps for 2012 came in at positive 0.5%, versus the negative 3% posted in 2011. The improvement was likely driven by new merchandising and store presentation initiatives and the benefit from J.C. Penney Co., Inc.'s significant sales decline. Fitch expects 2013 comps to be in the range of positive 1%-1.5%.
Leverage (adjusted debt/EBITDAR) is expected to improve modestly to the mid-to-high 5.0x range in 2013/2014 assuming EBITDA of $180 million - $190 million, versus $173.2 million in 2012. FCF is expected to be in the $30 million to $40 million range. The EBITDA margin remains depressed at 5.9% and is approximately 800 bps lower than investment grade-rated retailers such as Macy's Inc. and Kohl's Corporation. Fitch expects EBITDA margin improvement to be modest over the next 24 months.
Bon-Ton has successfully refinanced a large portion of its 2014 maturities. The company commenced a tender offer for the remaining $69 million of the 2014 notes and up to $223 million of its $330 million 10 5/8% senior secured notes due 2017 after the market close yesterday. Both of these are expected to be refinanced with the offering of $300 million second lien secured notes due 2021. After the refinancing, Bon-Ton's next debt maturity will have been pushed out to 2016 when its $225 million mortgage loan facility comes due.
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