S&P cuts Rent-A-Center, loan, notes

S&P said it lowered its corporate credit rating on Rent-A-Center Inc. by three notches to B- from BB-.

All ratings remain on CreditWatch negative.

Concurrently, the agency downgraded its issue-level ratings on the company's term loan to B from BB. The recovery rating is unchanged at 2, indicating an expectation for substantial recovery at the lower half of the 70%-90% range in the event of a payment default.

S&P also lowered the issue-level rating on the company's unsecured notes to CCC from B. The recovery rating remains 6, indicating expectations for negligible (0%-10%) recovery.

S&P said the downgrade reflects growing covenant breach concerns and uncertainty around the feasibility of a reversal of the accelerated negative same-store sales and declining margins in the company's core segment.

“In our view, improved e-commerce technologies and changing consumer behavior are resulting in more online price research and purchasing, substantially lowering barriers to entry for the RTO industry” the agency said in a news release.

“Other challenges include increasing competition from purely online entrants with lower overhead costs and broader product offerings, as well as from conventional brick-and-mortar retailers who already offer some form of the RTO transaction.”

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