Dive Brief:

• Moody’s Investors Service on Friday downgraded David’s Bridal debt deeper into junk territory, to Caa3, and changed its outlook to negative, according to a report emailed to Retail Dive.
• The wedding apparel retailer’s downgrade was based on "the increased likelihood of a distressed exchange or other balance sheet restructuring over the next 12 to 18 months, given David's Bridal's lack of meaningful improvement in operating performance in 2017, high leverage and 2019 maturities," Moody’s analysts wrote.
• More specifically, the analysts pointed to a $491 million secured loan due in October 2019 and $270 million in unsecured notes due in October 2020. The company has an asset-based revolving credit facility that matures in 2019, according to analysts, who described "an untenable capital structure" at David’s Bridal.

Dive Insight:

In David’s Bridal, Moody’s analysts see a specialty retailer beset by problems in its sector, capital structure and of the company’s own making, all of which could force it to refinance or even file for bankruptcy as its debt problems mount.

Increasing competition and "casualization" are challenging the wedding sector, according to Moody's. But David’s Bridal — owned by private equity firms Clayton, Dubilier & Rice and Leonard Green & Partners — also fell behind on its digital investments and suffered from issues in a 2016 website redesign that dropped the search rankings of some products, analysts have said. It’s all led to a 30% drop in the company’s earnings since 2012, according to Moody’s.

S&P Global, too, has recently downgraded the retailer’s debt ratings on the expectation that the company might restructure its debt in or out of court. Analysts with S&P noted in January, at the time of the downgrade, that the company "may not be able to refinance its debt because of weak operating performance expectations and poor market conditions."

"We also forecast that the company's operating performance will likely worsen over the next 12 months, as competition, price transparency, and changing bridal habits further pressure sales and margins," S&P analysts said in a January release, adding, "[w]e think profit and cash flow generation will be insufficient to support the current capital structure."

S&P analysts also noted David’s Bridal had tight liquidity, with just $125 million available under an asset-backed loan and "modest balance sheet cash."

The bridal sector has seen one bankruptcy recently, that of Alfred Angelo Bridal, which last summer shut down abruptly and created a panicked search for dresses among brides caught in limbo. That might carry dark portents for David's Bridal (which, for its part, tried to capitalize on Angelo's failure by offering discounts to frustrated brides who had purchased gowns from the bankrupt retailer).

As David's Bridal, which claims more than 60% of all brides shop at one of its stores, has tried to find its footing, turnover has increased in the c-suite. Last September, the company's then-CEO Pamela Wallack left the job after three years. (She later joined children's apparel retailer The Children's Place.) Paul Pressler, a former Gap CEO who resigned amid performance issues, replaced Wallack in the CEO spot.

Last year, Teamster members and consumer activists protested the company and warned about its finances at the Great Bridal Expo held in Washington D.C.