S&P downgrades Levitz debt rating
By Clint Engel -- Furniture Today, March 14, 2005
Woodbury, N.Y. — Levitz Home Furnishings Inc.'s debt rating was downgraded last week to junk bond status by Standard & Poor's Ratings Services with a negative outlook, after a tough quarter and disruption in vendor shipments at the end of the calendar year.
The corporate credit downgrade to CCC from B- was based on the Top 100 company's "sharp decline in profitability in the fiscal third quarter (ended Dec. 31), which has narrowed its liquidity position," S&P credit analyst Robert Lichtenstein said in a report.
The action by S&P comes about four months after LHFI closed on a $130 million bond refinancing package that it said would enable the company to retire older, high-interest debt and free capital for expansion and other purposes.
The November bond financing was a private placement. The retailer, with 143 Levitz and Seaman's stores in 11 states, has not publicly released its results.
In the S&P report, Lichtenstein said, "Levitz experienced sales pressure from the liquidation of competitors going out of business, along with continued weakness in the (Los Angeles) market."
S&P said the ratings reflect LHFI's participation in a cyclical, highly competitive industry, the regional nature of its business and "history of inefficient operations, poor liquidity, and a very highly leveraged capital structure."
Among other things, it noted that retailer Raymour & Flanigan plans to move into metro New York, where about 50% of LHFI's stores are concentrated, "providing additional competition."
LHFI President and Chief Operating Officer Mark Scott wouldn't disclose sales or earnings dollar figures but said, "We had a bad quarter." He said written sales declined 2.4% and delivered business was down 8.1% from the same period a year earlier.
Still, written business was up 2.1% on the East Coast for both Levitz and Seaman's stores, he said, noting the gain came in the face of competition from going-out-of-business sales at closing Huffman Koos stores.
Scott said LHFI faced erratic deliveries from vendors during the period, which he attributed to fallout from the Chinese bedroom antidumping issue and manufacturers' own liquidity issues, after hits from the bankruptcy filings of Breuners Home Furnishings Corp. and Rhodes last year.
Scott would not give a projection for business in the current quarter, but said it has been a mixed bag. A January snowstorm wiped out a week of business on the East Coast, but that was partly offset by 25% same-store gains during the Presidents Day holiday weekend.
Since Jan. 1, LHFI has opened eight stores on the East Coast.
LHFI's bond financing includes $100 million in debt at 12% interest and $30 million at 15%, with both issues maturing in 2011. The company said it helped to de-leverage a highly leveraged company by replacing old debt at various higher rates — as high as 24% — and extending the maturity date.
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