S&P rates Groupe SMCP notes B

Standard & Poor's said it assigned a preliminary B long-term corporate credit rating to Groupe SMCP SAS and its holding company, Soho Holding France SAS.

The outlook is stable.

The agency also said it assigned a preliminary B rating to the proposed €290 million fixed-rate secured notes to be issued by SMCP SAS. The preliminary recovery rating on the notes is 3, indicating 50% to 70% expected default recovery.

The ratings reflect the group's highly leveraged financial profile, along with its fair business risk profile as the group operates in the highly fragmented affordable luxury segment and focuses on existing trends to mitigate the fashion risk, S&P said.

The robust growth trends have enabled SMCP to enhance its bargaining power and improve its EBITDA margin by 200 basis points in the last two years despite almost flat gross margins, the agency said.

While current profitability trends are favorable, S&P said it believes that SMCP's operating trends are not immune to fashion risk, which is a common challenge for apparel retailers.

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