PVH Corp.'s (PVH) CFR Upgraded to 'Ba1' by Moody's; Outlook Stable

Moody's Investors Service upgraded PVH Corp. (NYSE: PVH) Corporate Family Rating to Ba1 and Probability of Default Rating to Ba1-PD. In conjunction with the rating action, the senior secured debt (which includes the bank facilities and secured bonds) and senior unsecured notes were raised a notch to Baa3 and Ba2, respectively. Moody's also affirmed the SGL-1 Speculative Grade Liquidity Rating. The rating action concludes the review for upgrade initiated on June 16, 2015. The rating outlook is stable.

"The upgrade reflects the reduction in adjusted debt due to changes in Moody's approach for capitalizing operating leases" said Moody's Vice President Scott Tuhy. The updated approach for standard adjustments for operating leases is explained in the cross-sector rating methodology Financial Statement Adjustments in the Analysis of Non-Financial Corporations, published on June 15, 2015. Tuhy added "The upgrade considers that notwithstanding expected pressure on results in the near term from the strengthening USD we expect PVH to maintain leverage in the low 3x range and consistent sales performance at its leading global brands Calvin Klein and Tommy Hilfiger."

The following ratings were upgraded:

Corporate Family Rating to Ba1 from Ba2

Probability of Default Rating from Ba1-PD from Ba2-PD

$750 million four-year secured revolving credit facilities to Baa3, LGD3 from Ba1, LGD3

$1.88 billion five-year secured term loan A to Baa3, LGD3 from Ba1, LGD3

$808 million five- year secured term loan B to Baa3, LGD3 from Ba1, LGD3

$100 million senior secured bonds due 2023 to Baa3, LGD3 from Ba1, LGD3

$700 million senior unsecured notes due 2022 to Ba2, LGD5 from Ba3, LGD5

The following ratings were affirmed:

Speculative Grade Liquidity Rating: SGL-1

Outlook: Stable

RATINGS RATIONALE

PVH's Ba1 CFR reflects the company's strong market position and ownership of two multibillion dollar lifestyle fashion brands with global presence and broad lifestyle appeal - Tommy Hilfiger and Calvin Klein. The rating reflects the company's consistent performance as evidenced by continued strong operating margins despite currency fluctuations and softness in some product categories (such as women's denim). The company's heritage businesses in the men's sportswear, swimwear, and intimate apparel categories are in mature categories however they are cash generated with strong and consistent returns on capital. The rating reflects the company's moderate debt burden with debt/EBITDA expected to be below 3.5 times by the end of the current fiscal year. Ratings are constrained by the company's aggressive financial policies which include meaningful debt financed acquisitions.

The stable rating outlook reflects our view the company will maintain leverage in the low 3x over the next 12-18 months as we anticipate that absent additional acquisition activity we expect the company will increasingly use its strong free cash flow to repurchase shares over time. The rating outlook encompasses expectations PVH will acquire licensed product categories and territories over time. Despite negative pressure on fiscal 2015 reported revenue due to currency headwinds, we expect the company to maintain positive constant-currency sales growth for its portfolio of brands as a whole and maintain its high operating margins.

Ratings could be upgraded if the company continues reduce absolute debt levels and demonstrates continued stability in operating performance. Quantitatively ratings could be upgraded if debt/EBITDA was expected to be below 3x and interest coverage exceeded 4.5x. The company would also need to meaningfully reduce its reliance on secured debt for an upgrade into investment grade.

Ratings could be lowered if the company's financial policies were to become more aggressive or operating performance began to falter. Quantitatively, ratings could be lowered if debt/EBITDA was sustained above 3.75x.

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