Moody's rates Escada notes B2

Moody's Investors Service said it assigned a prospective B2 senior implied rating to Escada AG and a prospective B2 rating to the proposed €200 million issuance of senior notes due 2012.

The outlook is positive.

Moody's said Escada's prospective B2 senior implied rating reflects (i) the company's highly leveraged capital structure, (ii) the cyclical nature of the luxury goods industry coupled with the fashion risk and high working capital investment required by Escada's role as both a retailer and supplier, (iii) the company's low operating profitability together with Moody's expectations that Escada's cash flow generation will be further constrained by its significant capex requirements going forward, (iv) the risks embedded in the company's strategy to continue expanding its directly controlled retail business, (v) the exposure to foreign currency movements, and (vi) the risks related to the succession of Wolfgang Ley, the company's founder.

More positively, the senior implied rating reflects (i) Escada's loyal and geographically diverse customer base, (ii) the benefits to the company's operating performance of the cost cutting measures initiated in October 2003, (iii) Escada's strong brand recognition, (iv) the flexibility gained by outsourcing of the apparel production to third party sub-contractors, and (v) its sound liquidity profile.

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