Charlotte Russe Inc. Downgraded To #CCC-# As Distressed Exchange Becomes More Outlook Negative

Stocks and Financial Services Press Releases Friday September 22, 2017 09:13
NEW YORK--22 Sep--S&P Global Ratings
NEW YORK (S&P Global Ratings) Sept. 21, 2017-- S&P Global Ratings today lowered its corporate credit rating on Charlotte Russe Inc. to 'CCC-' from 'CCC+'. The outlook is negative.

At the same time, we lowered the issue-level ratings on the first-lien debt to 'CCC-' from 'CCC+'. Our '4' recovery rating on the term loans reflects our expectation for average (30% to 50%; rounded estimate: 30%) recovery in the event of default.

The downgrade reflects our view that the probability of financial restructuring, including at least some of the company's debt obligations, at less than par is likely within the next six months. This view reflects the company's sizable term loan obligations that mature in May 2019, and our belief that the company lacks prospects for a strong, sustained rebound amid an increasingly competitive specialty apparel environment. In addition, we note the reportedly very low pricing indications of the company's term loans. We believe capital market access for the company could be restricted given reduced investor appetite for distressed retailers.

The negative outlook reflects our view that there is an increasing likelihood that the company will pursue a debt restructuring within the next six months, given our expectation for continued soft performance, the reportedly distressed pricing indications of its debt, and looming sizeable debt maturities coming due in May 2019.

We could lower our ratings on Charlotte Russe if it announces a distressed debt exchange or restructuring or if it is unable to meet its principal and/or interest payments.

We could revise the outlook to stable and/or potentially raise the ratings if a debt restructuring becomes unlikely over the next 12 months, and the company's standing in the credit market materially improves. This would most likely be the result of an unexpected turnaround in operations, or a cash equity infusion by the company's sponsor, which we believe is unlikely. An upgrade would also require our expectation that Charlotte Russe can address its 2019 maturities absent a subpar exchange.

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