Markets & Finance

S&P Raises Credit Ratings for Samsonite


On Aug. 7, 2003, Standard & Poor's Ratings Services raised its corporate credit rating on luggage and travel-related products manufacturer Samsonite Corp. to 'B' from 'B-'. At the same time, Standard & Poor's raised Samsonite's subordinated debt rating to 'CCC+' from 'CCC'. The ratings have been removed from CreditWatch, where they were placed Oct. 7, 2002.

In addition, Standard & Poor's assigned its 'B+' rating to Samsonite's new $60 million senior secured revolving credit facilities due 2007. The bank loan rating is rated one notch higher than the corporate credit rating, because Standard & Poor's believes that lenders could expect full recovery of principal in a stressed scenario, says analyst David Kang. Standard & Poor's also assigned its 'CCC' rating to Samsonite's new series of 8% convertible preferred stock. Proceeds from the sale of the new preferred stock were used to repay the company's existing bank debt. The rating on the previous bank loan has been withdrawn.

In addition, the company has retired all of the outstanding shares of its 13 7/8% senior redeemable preferred stock in exchange for new preferred and common stock. The rating on the company's previous series of senior redeemable preferred stock has been withdrawn.

These actions follow Samsonite's July 31 announcement that it has closed its previously announced recapitalization transaction with ACOF Management LP, Bain Capital (Europe) LLC, and Teachers' Merchant Bank, the private equity arm of Ontario Teachers' Pension Plan. The transaction not only improves the company's financial profile by lowering its total debt and preferred stock burden, but also eliminates onerous near-term bank maturities.

The outlook is stable.

Denver, Colo.-based Samsonite had about $429 million of total debt and about $332 million of preferred stock outstanding at April 30, 2003.

The ratings on Samsonite reflect its leveraged financial profile, narrow business focus, challenging industry conditions, and the industry's exposure to the depressed travel industry. These factors are somewhat mitigated by the company's leading market position, portfolio of well-recognized brands, and its global presence, as well as by management's focus on controlling costs.

Samsonite is a global manufacturer and distributor of luggage, casual bags, business cases, and other travel-related products. Despite a somewhat narrow business focus, Samsonite has a leading market position in the competitive hard and soft-sided luggage industry with well-known brands that include Samsonite, Lark, and American Tourister. Furthermore, the company benefits from its global sourcing capabilities and broad, geographically diverse distribution network, selling in more than 100 countries worldwide.

For the three months ended April 30, 2003, net sales were up about 1% versus the same period last year largely due to the increase in the value of the euro relative to the U.S. dollar. Still, industry conditions have remained challenging, as net sales on a local currency basis actually declined by about 8%. The company attributes the decline to a weak U.S. retail environment and reduced travel primarily due to the war in Iraq and the spread of the SARS virus. Still, the company has managed to improve EBITDA margins to about 9.4% for the three months ended April 30, 2003, versus 6% for the same period last year, largely because of lower product sourcing costs and operational cost savings associated with its past restructuring activities.

The recapitalization eliminates onerous near-term bank debt, reduces the amount of preferred stock outstanding, and lowers the preferred stock dividend rate. Although the recapitalization improves Samsonite's financial profile, the company continues to be highly leveraged. From Standard & Poor's RatingsDirect


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