Moody’s cuts Hot Topic notes to B2

Moody's Investors Service said it affirmed HT Intermediate Holdings Corp.'s (Hot Topic) B2 corporate family rating and B2-PD probability of default rating following the company's announcement that it plans to finance the May 26 redemption of its $110 million senior HoldCo PIK notes due 2019 with preferred equity from its private equity sponsor Sycamore Partners.

Concurrently, the agency downgraded the rating on operating subsidiary Hot Topic, Inc.'s senior secured notes due 2021 to B2 from B1.

The outlook is stable.

Hot Topic's announcement is a credit positive because the equity-financed redemption will improve credit metrics and liquidity, the agency said. The preferred stock will have a PIK dividend and no mandatory redemption.

Moody’s said the downgrade of the senior secured notes to B2, the same level as the corporate family rating, reflects the elimination of the loss absorption cushion that was previously provided by the HoldCo PIK notes given their junior position in the company's capital structure. The B2 rating of the senior secured notes reflects their predominance in the capital structure on a pro-forma basis.

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