S&P downgrades Rue21, loan, notes

S&P said it lowered its corporate credit rating on rue21 Inc. to CCC from B-.

The outlook is negative.

At the same time, the agency downgraded the issue-level rating on the company's term loan facility to CCC from B- and the issue-level rating on the senior unsecured notes to CC from CCC. The 4 recovery rating on the term loan reflects an expectation for average recovery in the event of default, at the low end of the 30% to 50% range. The 6 recovery rating on the unsecured notes reflects an expectation for negligible recovery in the event of default.

"The downgrade reflects our expectation for continued weak operating performance and weakened liquidity. Rue21's fiscal third quarter results were weak with negative comparable-store sales and its trailing-12-month adjusted EBITDA margins have fallen nearly 400 basis points year over year because of increased promotional activity (to attract customer traffic) and sales deleveraging," S&P credit analyst Mathew Christy said in a news release.

"The weak operating performance has resulted in significant negative free operating cash flow through the first nine months of the fiscal year and meaningful borrowing on its $150 million asset-based lending (ABL) facility."

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