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New York, September 08, 2022 — Moody’s Investors Service (Moody’s) downgraded Elevate Textiles, Inc.’s (Elevate) ratings, including the corporate family rating (CFR) to Caa1 from B3, probability of default rating (PDR) to Caa1-PD from B3-PD, senior secured first lien term loan rating to Caa1 from B3, and senior secured second lien term loan rating to Caa3 from Caa2. The outlook was changed to stable from negative.
The downgrade reflects Moody’s view that the weaker retail environment and increasing macroeconomic pressures will result in limited growth in earnings and free cash flow, which would impede Elevate’s ability to reduce leverage. Although Moody’s expects the company’s operating performance to remain broadly resilient due to the diversified nature of its business, earnings growth is needed to sufficiently cover the higher costs stemming from rising interest rates, which increases the risk that the company could face difficulty refinancing its debt in a timely and economical manner. Elevate has high leverage of 6.1x Moody’s-adjusted debt/EBITDA (5.2x based on credit agreement net leverage calculations) and the majority of its funded debt matures in 2024.
Moody’s took the following rating actions for Elevate Textiles, Inc.:
…. Corporate Family Rating, downgraded to Caa1 from B3
…. Probability of Default Rating, downgraded to Caa1-PD from B3-PD
…. Gtd Senior Secured 1st Lien Term Loan, downgraded to Caa1 (LGD3) from B3 (LGD4)
…. Gtd Senior Secured 2nd Lien Term Loan, downgraded to Caa3 (LGD5) from Caa2 (LGD5)
…. Outlook, revised to Stable from Negative
RATINGS RATIONALE
Elevate’s Caa1 CFR reflects its high leverage and 2024 maturities. The company experienced a strong earnings recovery in the first half of 2022, driven by demand across all channels, price increases to offset inflationary cost pressures, high capacity utilization, and productivity improvements. However, the curtailing of retailer orders in summer 2022 in response to the supply-demand mismatch is expected to impact Q3 results. Further, rising macroeconomic pressures increase the risk that future earnings improvement will be limited. The rating also reflects governance risks associated with private equity ownership, particularly acquisition strategies and dividend and capital allocation policies. Elevate’s high debt levels largely stem from the May 2018 acquisition of American & Efird Global Holdings, LLC (A&E), a transformative transaction that more than doubled the company’s size. In 2019, Elevate experienced earnings declines and transformation costs that were not anticipated at the time of the transaction, resulting in high leverage heading into 2020.
At the same time, the rating incorporates Elevate’s solid market position in the fragmented global threads and textile manufacturing markets. The company’s diverse product end markets and geographical footprint, and its established long-term key customer relationships, support revenue stability. This is evidenced by Elevate’s strong performance during the coronavirus pandemic, when the company grew earnings as it added barrier fabrics business that more than offset the declines in other products. The rating is also supported by Elevate’s adequate liquidity over the next 12-18 months.
The stable outlook reflects expectations for adequate liquidity and stable earnings performance over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if the company does not make progress in addressing its debt ahead of its maturities, or if earnings or liquidity deteriorate.
The ratings could be upgraded if the company refinances its debt in a timely and economically manner with long dated maturities, such that EBITA/interest expense is above 1.25 times on a pro-forma basis. An upgrade would require stable or growing earnings and at least adequate liquidity.
Headquartered in Charlotte, North Carolina, Elevate Textiles, Inc. is a global textiles and threads manufacturer serving diverse end markets, including apparel, denim, military, fire, auto and industrials. Elevate is a direct subsidiary of Elevate Textiles Holding Corporation. The company is owned by affiliates of private equity firm Platinum Equity LLC. Revenues for the twelve months ended June 30, 2022 were approximately $1.3 billion.
The principal methodology used in these ratings was Manufacturing published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74970. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Raya Sokolyanska
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Margaret Taylor
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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