Moody's downgrades Rafaella

Moody's Investors Service said it downgraded Rafaella Apparel Group, Inc.'s corporate family and probability-of-default ratings to Caa1 from B2 and its senior secured notes due June 2011 to Caa2 (LGD4, 59%) from B3 (LGD4, 64%).

This concludes the review for possible downgrade that began on Oct. 3, and the outlook is negative.

The agency said the downgrade and negative outlook reflect Rafaella's deteriorating operating performance and credit metrics due to the declining macro-economic environment, which has resulted in volume declines at the company's higher-margined department store customers, as well as significant gross margin erosion due to increased sales to off-price customers and inventory mark downs.

Moody's anticipates that Rafaella's performance will remain under pressure through at least the first half of 2009 given the expectation for weak discretionary consumer spending and pressure on its retail customers to keep inventory levels down.

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