S&P Lifts Corp. Rating on Burlington Stores (BURL) to 'B+'; Strong Executiion Led to Improved Credit Metrics

Standard & Poor’s Ratings Services today raised its corporate credit rating on Burlington Stores (NYSE: BURL) to ‘B+’ from ‘B’. The outlook is positive.

At the same time, we raised our issue-level rating on the asset-based lending (ABL) facility to ‘BB’ from ‘BB-’. We also raised our issue-level rating on the secured term loan to ‘BB-’ from ‘B+’. The recovery ratings on both facilities are unchanged.

"The positive outlook reflects our view that Burlington continues to benefit from good execution of strategic initiatives implemented in recent years, including enhanced inventory flow, store improvement, and merchandise localization," said credit analyst Andy Sookram. "These initiatives propelled the improvement in credit metrics at year-end 2014 with leverage improving to 4.1x from 4.8x during the same period a year ago. Moreover, Bain Capital has recently exited its investment in Burlington Stores, supporting our view that there is less likelihood that the company will recapitalize its balance sheet at higher leverage levels (and our reassessment of its financial policy to "neutral" from "FS-6")."

The positive rating outlook reflects our view that credit metrics should improve in line with our expectations because of good execution of operational initiatives.

Downside scenario

We could revise the outlook to stable if profits decline and leverage remains above 4x. This could occur if the company reinvests in pricing because of stiffer competition or marks down inventory because of merchandise missteps. In this scenario, we could see same-store comparisons declining to negative levels.

Upside Scenario

We could raise the ratings if the company demonstrates the ability to further improve performance consistent with our expectations. We expect EBITDA marginsto improve to 14.6% and leverage declining in the high-3x area. If we decide to raise the ratings, we would remove the negative comparable ratings analysis adjustment because we have confidence the company will maintain credit metrics consistent with a one-notch higher rating. In this scenario, we would need to see good same-store sales comparison, improving EBITDA margins and leverage sustained below 4x.

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