Moody's lifts Claire's view to stable

Moody's Investors Service said it changed Claire's Stores, Inc.'s outlook to stable from negative, upgraded its speculative-grade liquidity rating to SGL-3 from SGL-4 and affirmed its corporate family and probability-of-default ratings at Caa3, its $200 million senior secured revolving credit facility and $1.45 billion senior secured term loan at Caa2 (LGD3, 32%), its senior unsecured notes at Ca (LGD4, 68% revised from 67%) and its senior subordinated notes at Ca (LGD6, 94% revised from 93%).

The agency said the change in outlook and the upgrade to SGL-3 reflect Claire's improvement in liquidity. Now that Claire's has stopped generating sizable free cash flow deficits, Moody's expects that it has ample cash on hand to support its operations over the next 12 months.

The Caa3 corporate family rating reflects the company's very weak credit metrics as a result of its heavy debt load and Moody's opinion that Claire's has an unsustainable capital structure at its current performance levels and is likely to pursue a distressed debt exchange or capital structure restructuring.

Moody's said it does recognize Claire's strong qualitative factors such as its geographic diversification, its well-known brand name and its high margins relative to the specialty retail peers.

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