Moody's downgrades DirectBuy
Clint Engel -- Furniture Today, January 16, 2012
MERRILLVILLE, Ind. - Moody's Investor Service has downgraded DirectBuy Holdings' corporate rating to Caa3 from Caa2 and said the outlook was negative for the consumer buying service.
Moody's cited DirectBuy's covenant default on a credit facility, a going concern opinion from its auditors, and the hiring of advisor for possible debt restructuring.
Moody's downgrade, made last month, applied to what it calls DirectBuy's "corporate family rating" and also to the rating on the membership club's $335 million in senior secured debt. It cited the company's late November disclosure that it was in default on a $30 million revolving credit facility due to a financial covenant violation. If DirectBuy's lenders choose to accelerate payback, it would create a default, Moody's said in the report.
DirectBuy also disclosed that it has hired a financial advisor "in connection with potential debt restructuring."
"We feel this significantly increases the likelihood of some sort of distress exchange that would impair creditors," the rating agency said.
Its negative outlook on the company stems from this potential impairment over the next 12 to18 months, Moody's said, noting that DirectBuy has a $10 million interest payment on the senior debt coming due Feb. 1.
DirectBuy CEO Scott Powell did not return a call seeking comment.
According to Moody's, Caa ratings are among its lowest - third from the bottom. Obligations rated this way are "judged to be of poor standing and are subject to a very high credit risk," the company says.
In September, Standard & Poor's lowered the corporate credit rating of DirectBuy to CCC from B, saying the outlook is negative in the face of declining membership and ongoing legal issues. It also lowered the rating on the senior secured debt to CCC-and revised down its "recovery rating," saying it expects modest recovery for lenders (10% to 30%) if there is a default.
Founded as United Consumer Club, DirectBuy says on its website that has "hundreds of thousands of members" who pay "dealer prices" on consumer goods, with no hidden retail markups. The wording has changed since September, when the company boasted of 400,000 members.
The company reportedly has charged members in the $3,000 to $4,000 range for two to three-year memberships.
DirectBuy was acquired by private equity firm Trivest Partners in December 2007.
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S&P Lowers Direct Buy Corporate Credit Rating
Sep 24, 2011 -
S&P downgrades DirectBuy corporate credit rating
Sep 14, 2011
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