Charlotte Russe receives a downgrade rating from Moody's

San Francisco-based company Charlotte Russe recently got a downgrade for its loans. The fashion retailer was downgraded from Moody’s, an investors service known for company research and investing information. Charlotte Russe’s senior secured loans that were due 2019 were downgraded by the investors company from B2 to B3.

Moody’s has a large range of investment grades including both short-term and long-term. Aaa is rated as the highest quality and lowest credit risk while C is rated as the lowest quality. Previously, Charlotte Russe was rated at a B2 rating which is judged as being "speculative and a high credit risk." The investors company downgraded the fast-fashion retailer’s by one notch lower to B3, resulting in a higher-risk rating. In addition, the company’s Probability of Default Rating was downgraded to B3-PD and the company’s outlook was changed to “Negative,” according to a press release by Global Credit Research.

The downgrade is reflective of the company’s operating performance through October 31, 2015. In order for Charlotte Russe to redeem itself back up to a B2 rating, the company will be forced to improve its overall operating performances. Also, the retailer will have to bring its credit metrics back in line with what the B2 rating category requires.The next period that will define the company’s rating will be decided between Charlotte Russe’s performance over the next 12-24 months. If the trendy retailer hopes to improve Moody’s rating and Probably of Default Rating, the company will need a business plan directly targeted at these issues.

Charlotte Russe downgrades to B3 rating

Although it may prove difficult for the fashion chain to achieve its higher rating within the next 1-2 years, it is not impossible. However, the change won’t happen anytime soon. This is also largely in part due to the fact that shopping malls have been dying out for some time now. “Given the competitive operating environment and declining mall traffic trends, it will take some time for the company to reestablish itself with core customers,” said Dan Altieri, Moody’s analyst. This added issue along with Charlotte Russe’s struggle as a fashion business will make the transition back into B2 more challenging.

In the future, Moody’s expects that the on-trend company will “maintain adequate liquidity” over the next 12-18 months with “close to breakeven free cash flow,” according to Global Credit Research. At the moment, however, Charlotte’s past performance until the end of 2015 failed to meet expectations. Moody’s standards downgrade businesses when they fail to provide meaningful improvements of operations.

The fast-fashion retailer operated 559 retail stores as of October 2015. Also, the company’s revenue for the LTM period was 935 million dollars. Currently, the San Francisco-headquartered company will need to rethink business steps in order to change this rating.

Photos: Wikipedia Commons, Charlotte Russe