NEW YORK Feb 18 Standard & Poor's on Wednesday
cut its ratings on BCBG Max Azria Group to a deeply speculative
grade and cited concerns that the fashion retail chain may trip
its debt covenants and struggle to make a $20 million loan
payment due in March.
"We are very concerned with BCBG's liquidity position," S&P
said in a statement. The company had $20 million available in
cash and its revolving credit line in early January, however it
also has a $20 million loan payment due in March, S&P said.
Declining sales at Max Rave, which BCBG acquired in 2006,
is also likely to push the subsidiary to break minimum earnings
before interest, taxes, depreciation and amortization (EBITDA)
terms in its loan agreements, S&P said.
"We do not expect Max Rave to meet its minimum EBITDA
covenant," S&P said. "This does not constitute an immediate
event of default but could prove distracting for management."
"The 2006 acquisition of the Max Rave business added to the
company's business risk and it continues to underperform
because of negative sales trends," S&P added.
S&P cut BCBG's ratings one step to "CCC-plus," seven steps
below investment grade, and gave the company a negative
outlook, indicating an additional downgrade may be likely over
the next one-to-two years.
"The ratings on BCBG reflect its participation in the
highly competitive and fragmented apparel retailing industry,
weak performance by its Max Rave subsidiary, a very highly
leveraged structure that results in thin cash flow protection
measures, and our expectation that the company is vulnerable to
nonpayment of its obligations," S&P said.
(Reporting by Karen Brettell; Editing by Diane Craft)