S&P trims Flamingo Group

S&P said it lowered its ratings to B- from B on Flamingo Group International Ltd. (Zara UK Topco Ltd.), its €280 million senior secured first-lien term loan B due February 2025, and €30 million committed revolver due February 2024.

“The downgrade reflects a deterioration in credit metrics, notably slightly negative FOCF generation, due to a worse-than-expected operating performance,” S&P said in a press release.

Additionally, “For fiscal 2023, we anticipate that sales will decrease to about £630 million-€635 million, while the adjusted EBITDA margin will be about 8%-8.5%. We forecast FOCF of negative £3 million to negative £2 million, stemming from lower earnings generation and working capital requirements. Interest expense will increase further in 2023 because of rising interest rates since all of Flamingo Group's debt is floating rate and the group has not put in place any interest rate hedging instruments.

“FFO cash interest coverage will deteriorate to about 1.5x-1.8x and adjusted leverage will be about 6x, although we acknowledge adjusted debt to EBITDA remains low,” the agency said.

The outlook is stable.

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