Moody’s cuts TOMS Shoes, loan to Caa2

Moody's Investors Service said it downgraded TOMS Shoes, LLC’s corporate family rating to Caa2 from Caa1, probability of default rating to Caa2-PD from Caa1-PD and senior secured term loan rating to Caa2 from Caa1.

The outlook is stable.

Moody’s said the downgrade reflects its expectations that weak industry-wide apparel and footwear conditions particularly in the wholesale channel will make it challenging for TOMS to avoid increased reliance on its revolver.

“The company has made significant progress in its turnaround plan, including supply chain efficiencies, product improvement, assortment optimization, and SG&A cost savings. However, despite these improvements, TOMS credit metrics remain very weak and its liquidity remains tight,” the agency said in a news release.

“In Moody's view the ongoing deterioration in the apparel environment poses a threat to TOMS' ability to grow earnings and generate positive free cash flow. Moody's expects this to result in higher revolver reliance, leaving the company with a limited liquidity cushion to manage any earnings weakness.”

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