Fitch Ratings Affirms Saks' Notes at 'BB+/BB-'; Outlook Remains Negative.Business Editors CHICAGO--(BUSINESS WIRE)--July 1, 2003 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. its 'BB+' rating of Saks Incorporated's $700 million secured bank facility, and its 'BB-' rating of the company's $1.2 billion of senior notes. The Rating Outlook remains Negative. The ratings reflect Saks' solid position within its markets balanced against its weak operating results and high financial leverage. Saks' operations have been pressured by soft apparel sales and growing competition from specialty and discount retailers. Sales at the company's luxury retail business (Saks Fifth Avenue Saks Fifth Avenue is a chain of upscale American department stores that is owned and operated by Saks Fifth Avenue Enterprises (SFAE), a subsidiary of Saks Incorporated. It competes in the elite luxury department store market with Neiman Marcus, Bergdorf Goodman and Barneys New ) have also been hurt by declines in international tourism. Saks is projecting flat to negative comparable store sales in 2003, which will further pressure earnings and cash flow. Saks strengthened its liquidity position with the sale of its credit business in the first quarter, generating net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of around $330 million. These proceeds, which brought cash balances to $503 million as of 5/3/03, will be used to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. common stock and reduce debt, as well as reinvest re·in·vest tr.v. re·in·vest·ed, re·in·vest·ing, re·in·vests To invest (capital or earnings) again, especially to invest (income from securities or funds) in additional shares. in the business. Though the pace of debt reduction will be slowed by a lack of near-term debt maturities, the company will be able to repay $142 million of debt maturing in 2004 from cash on hand. Saks' credit measures remain weak despite meaningful debt reduction over the past four years. EBITDAR Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring Costs - EBITDAR An indicator of a company's financial performance calculated as: = Revenue - Expenses (excluding tax, interest, depreciation, amortization, and restructuring costs) coverage of interest plus rents of 2.0 times (x) in the twelve months ended 5/3/03 compares with 1.7x in 2001 and 2.5x in 1999. Leverage as measured by lease-adjusted debt to EBITDAR of 4.4x in twelve months ended 5/4/02 compares with 5.3x in 2001 and 4.0x in 1999. The challenging retail environment, together with lost income from the sale of the credit business, will further pressure these measures in 2003. However, it is assumed that a gradual recovery in cash flow beginning in 2004, together with projected debt reduction, will lead to modest improvement in Sak's credit profile over the medium-term. Nevertheless, the Negative Rating Outlook will remain in place until sales and operating trends turn around. |
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