Friday September 19 6:17 PM EDT
Company Press Release
Warnaco Affirmed, Designer Holdings on S&PWatch Regarding Acquisition
NEW YORK, Sept. 19 /PRNewswire/ --Standard & Poor's today affirmed its triple-'B' corporate credit rating on Warnaco Group Inc. following the company's
announcement that it has reached an agreement in principle to acquire Designer Holdings Ltd. for stock valued at $354 million. The outlook is positive.
At the same time, Standard & Poor's placed its double-'B'-minus corporate credit rating on Designer Holdings Ltd. and its single-'B' rating on Designer Finance
Trust's $120 million convertible trust originated preferred securities on CreditWatch with positive implications. The securities are guaranteed by Designer Holdings.
Upon completion of the acquisition, the corporate credit rating will be raised to triple-'B' to reflect the credit quality of the combined entity, and the rating will
subsequently be withdrawn. The preferred stock rating will be raised to triple-'B'-minus based on the enhanced ability of the combined entity to service preferred
dividends.
The acquisition of Designer Holdings diversifies Warnaco's product line and adds a successful jeanswear license. However, Standard & Poor's views the
acquisition as increasing Warnaco's business risk since jeanswear is subject to more fashion risk and cyclicality than Warnaco's mostly basic intimate apparel items.
The jeanswear industry is also highly competitive. Operating margins at Designer Holdings are significantly lower than Warnaco's, but earnings before interest,
taxes, depreciation, and amortization interest coverage ratios are similar for both companies at over 5 times in 1996. Credit quality of the combined company is
expected to be consistent with the triple-'B' rating.
New York, New York-based Designer Holdings develops, sources, and markets designer jeanswear under the Calvin Klein Jeans label. Revenues tripled over the
last three years to $480 million in 1996, as management successfully repositioned and broadened the market for Calvin Klein jeanswear. The Calvin Klein brand is
well recognized and benefits from a strong advertising and marketing campaign. However, results in 1997 are expected to be below those of 1996 due to
weakening demand for denim products resulting in margin pressure.
Warnaco's rating is based on the New York, New York-based company's ongoing success in its core intimate apparel unit, continuing growth initiatives through
new distribution channels and brands, and strong debt coverage measures, offset, in part, by its average business profile.
OUTLOOK (WARNACO GROUP): POSITIVE
Standard & Poor's may raise the rating on Warnaco if the company continues to generate good profitability and meets its growth objectives while maintaining a
moderate financial profile. -- CreditWire
SOURCE Standard & Poor's CreditWire |
