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Feb 15, 2012
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S&P assigns Claire's Stores notes rating

By
Reuters
Published
Feb 15, 2012

Standard & Poor's Ratings Services said today that it assigned its 'B' issue-level rating to the company's $400 million senior secured first-lien notes. At the same time, we affirmed all other ratings on the company, including our 'B-' corporate credit rating. According to the company, Claire's Stores will use the proceeds to repay a portion of its term loan.

"The ratings on Pembroke Pines, Fla.-based Claire's Stores Inc., a specialty retailer of value-priced jewelry and fashion accessories for preteens, teenagers, and young adults, reflects our expectation that it will remain highly leveraged, with thin cash flow protection," said Standard & Poor's credit analyst David Kuntz. The company's "weak" business profile (based on our criteria) reflects its participation in the competitive, fragmented, and cyclical fashion accessory industry.

Claire's faces competition from a number of different retailers, including other jewelry and fashion accessory specialty retailers, apparel retailers with comparable offerings, department stores, and mass merchandisers. The stable rating outlook reflects our expectation of modest near-term performance gains resulting from further positive growth at the North American division.

We anticipate that Europe is likely to remain weak based on continued macroeconomic difficulties.

Overall, we do not expect the company's credit protection measures to change meaningfully over the near term. The outlook also incorporates our expectation that liquidity will remain adequate over the near term.

Given the company's very highly leveraged capital structure and thin interest coverage, an upgrade is not a near-term consideration. We would predicate any upward ratings movement on EBITDA growth of more than 50% ahead of our projections, which would result in leverage under 6x and interest coverage above 2x.

We could consider downgrading the company if its performance and liquidity position were to deteriorate to such an extent that we conclude that cash on hand is insufficient to cover operational shortfalls. This could result from a substantial erosion of performance, with EBITDA 30% below our expectations. At that time, interest coverage would be below 1x.

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