Moody's drops Finlay

Moody's Investors Service said it downgraded the probability-of-default rating of Finlay Fine Jewelry Corp. to D from Ca, signifying that a default has occurred on its rated securities.

The corporate family rating was downgraded to Caa3 from Caa2. The senior unsecured notes rating was affirmed at Ca (LGD6, 91%).

The outlook is negative.

According to Moody's, the downgrade of the probability-of-default rating to D was prompted by Finlay's distressed exchange of $139.6 million of its 8 3/8% senior notes for new third-lien secured pay-in-kind notes.

The downgrade of the corporate family rating reflects the company's sizable level of free cash flow burn given its very weak operating performance and the increased probability that the company could suffer another default on its debt over the next 12 to 18 months, the agency said.

The downgrade also reflects the additional debt Finlay incurred by issuing $20 million of senior secured second-lien notes, the agency noted.

The Caa3 corporate family rating reflects Finlay's very weak credit metrics and increasing amounts of free cash flow burn as well as very limited financial flexibility, Moody's said.

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