New York, August 12, 2022 – Moody’s Investors Service (“Moody’s”) affirmed Parfums Holding Company, Inc.’s B3 Corporate Family Rating (“CFR”), B3-PD Probability of Default Rating and B3 senior credit rating Company credit facility. Parfums’ senior secured credit facility consists of a $39 million senior secured revolving credit facility expiring in March 2024 and a senior secured term loan maturing in June 2024. The outlook is changed from positive to stable.
The change in rating outlook from positive to stable reflects Moody’s view that perfumes are unlikely to meet Moody’s upgrade triggers in their vicinity, including maintaining debt-to-EBITDA sustainably below 6.0x and free cash flow-to-debt sustained above 6%. As of March 31, 2022, Parfums’ debt to EBITDA ratio was 6.4 times and the company’s operating performance continues to be negatively impacted by industry-wide higher input and transportation costs and supply chain disruptions. Fragrances has benefited from strong demand for self-care products as the impact of the coronavirus and consumers spend more time at home. As the coronavirus eases and more consumers shift their spending to services and out-of-home products, Moody’s expects the company’s revenue growth to slow to a mid-single-digit percentage. Moody’s also expects the company’s earnings and cash flow generation to decline due to higher costs and working capital investments. Additionally, Parfums has a relatively short-term debt structure, with the revolver and term loans both maturing in 2024.
The confirmation of the B3 CFR reflects Moody’s expectation that Perfumes will maintain its EBITA margin in the mid-teens despite higher costs and lower sales growth. Moody’s also expects the company to generate positive free cash flow and maintain good liquidity.
Affirmations:
..Issuer: Parfums Holding Company, Inc.
…. Failure Probability Assessment, Confirmed B3-PD
…. Corporate Family Rating, Confirmed B3
…. Secured Senior Collateralized Bank Credit Facility (Local Currency), Confirmed B3 (LGD4)
Outlook action:
..Issuer: Parfums Holding Company, Inc.
….Outlook changed from positive to stable
REASONS FOR VALUATION
Parfums’ B3 CFR reflects its high financial leverage of 6.4x Debt-to-EBITDA as of March 31, 2022, small size compared to larger and better capitalized competitors and the event risk associated with its controlling interest through a financial sponsor. Demand for the company’s products is vulnerable to shifts in consumer preferences, weak household incomes, retailer allocation of shelf space and marketing support. The mass fragrance, bath, multicultural hair care and beauty segments are highly competitive, and perfumes face stiff competition from branded product companies that are significantly larger, more diverse, financially stronger and with much greater investment capacity. These factors are partially offset by the Company’s projected free cash flow generating ability, good geographic and product diversification, and solid historical organic growth in several of the Company’s key product categories. The rating is also supported by the well-recognized fragrance brand name in niche markets, good liquidity and Moody’s expectation that continued distribution gains and product development will support the company’s operating performance over the next 12 to 18 months.
The majority of Parfums’ operations were built through a series of acquisitions prior to 2017. Since then, sales have grown about 10% organically over the past four years. The management team has delivered strong growth despite the uncertain economic environment through actions such as increasing distribution and focusing on products with favorable demographics. Moody’s expects performance to gradually weaken after a period of strong growth. Additionally, the company’s sales and earnings are vulnerable to changing customer preferences and competition — particularly from much larger, better-capitalized competitors in the beauty care and multicultural hair care categories. Continuous investment in new product development and marketing is necessary to attract and retain customers.
In terms of environmental, social and governance (ESG) considerations, fiscal governance considerations are the most important factor driving perfume ratings. Moody’s views perfume’s financial policies as aggressive given its appetite for debt-financed buyouts. Social risk is a factor for perfumes as it sells products that appeal to customers almost exclusively for ‘social’ reasons. To the extent that such social factors change, this could have a positive or negative impact on the company’s sales and earnings.
FACTORS THAT COULD RESULT IN AN UPGRADE OR DOWNGRADE IN RATINGS
Actions by customers or competitors that pressure Fragrances sales and EBITDA through deterioration in market share, retail distribution or pricing could result in a downgrade. Acquisitions, shareholder distributions, earnings weakness or other actions that result in a debt to EBITDA ratio in excess of 7.5x or deterioration in liquidity or failure to refinance in a timely manner could also result in a downgrade.
An upgrade could be considered if Parfums continues to demonstrate a track record of profitable growth. An upgrade would also require Parfums to adopt a more conservative fiscal policy, supporting a debt-to-EBITDA ratio below 6.0x and free cash flow on debt above 6%. Perfumes also need to maintain good liquidity.
The main methodology used in these assessments was Consumer Packaged Goods, published June 2022 and available at https://ratings.moodys.com/api/rmc-documents/389866. Alternatively, you can check out the Assessment Methods page https://ratings.moodys.com for a copy of this methodology.
Perfumes Holding Company, Inc., headquartered in Stamford, CT, develops, markets and distributes fragrances, bath care products, and specialty bath and hair care products to the mass consumer market. Key brands include Dr. Teal’s, Cantu, Body Fantasies, Eylure, BODman and Bodycology. Perfumes has been majority-owned by CVC Partners since a leveraged buyout in 2017 and the company has approximately $600 million in annual sales.
LEGAL DISCLOSURES
For more details on Moody’s key rating assumptions and sensitivity analyses, see the methodology assumptions and sensitivity to assumptions sections of the disclosure document. For Moody’s rating symbols and definitions, see https://ratings.moodys.com/rating-definitions.
For ratings provided for a program, series, category/class of debt instrument, or security, this announcement contains certain regulatory disclosures with respect to each rating of a subsequently issued bond or debenture of the same series, category/class of instrument, security or under a program for which ratings are derived solely from existing ratings in accordance with Moody’s rating practice. For ratings provided by a support provider, this announcement contains certain regulatory disclosures in relation to the support provider’s credit assessment action and in relation to each individual credit assessment action for securities that derive their credit ratings from the support provider’s credit assessment. For preliminary ratings, this announcement contains certain regulatory disclosures in relation to the preliminary rating assigned and in relation to a final rating that may be assigned after the final issuance of the Debt Instruments, in each case where the transaction structure and terms have not changed before issuing the final rating in a way that would have affected the rating. For more information, see the issuer’s issuer/deal page https://ratings.moodys.com.
For any affected security or rated entity that receives direct credit support from the primary entity(ies) of that rating action and whose ratings may change as a result of that rating action, the related regulatory disclosures are those of the guarantor entity. Exceptions to this approach exist for the following disclosures where applicable to the jurisdiction: Benefits, Disclosures to Reviewed Entities, Disclosures by Reviewed Entities.
The ratings have been disclosed to the rated entity or its nominated representative(s) and are issued without any changes resulting from this disclosure.
These reviews are requested. Please see Moody’s policy on the naming and assignment of unsolicited credit ratings, which is available on Moody’s website https://ratings.moodys.com.
The regulatory disclosures contained in this press release relate to the credit rating and, where applicable, the associated rating outlook or rating summary.
For Moody’s general principles for assessing environmental, social and governance (ESG) risk in our credit analysis, see https://ratings.moodys.com/documents/PBC_1288235.
The global scale credit rating in this rating communication was prepared by an affiliate of Moody’s outside the EU and is confirmed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Article 4(3) of the rating agency Regulation (EC) No. 1060/2009 on credit rating agencies. For more information on EU endorsement status and the Moody’s office that issued the rating, go to https://ratings.moodys.com.
The Global Scale Credit Rating in this Ratings Release has been issued by an affiliate of Moody’s outside the UK and is certified by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA in accordance with UK rating agency laws . For more information on UK endorsement status and the Moody’s office that provided the credit rating go to https://ratings.moodys.com.
Please see https://ratings.moodys.com for updates on changes by Moody’s lead rating analyst and the rating entity.
Please see the issuer/deal page at https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Dawei Ma
analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, New York 10007
United States of America
JOURNALISTS: 1 212 553 0376
Customer Service: 1.212.553.1653
John E Puchalla, CFA
Deputy General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer Service: 1.212.553.1653
Approving office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, New York 10007
United States of America
JOURNALISTS: 1 212 553 0376
Customer Service: 1.212.553.1653
