Dive Brief:

• Moody's Investors Service on Monday said it was reviewing Rent-A-Center's B2 credit rating for a possible downgrade following the company's announced buyout by private equity firm Vintage Capital Management, according to a client note emailed to Retail Dive.
• "While Rent-A-Center appears to be making progress with its strategic turnaround plan, it is still in the early stages and has yet to prove sustainable," Mike Zuccaro, Moody's retail analyst, said in a statement. "We believe this transaction will likely result in meaningfully higher debt and leverage, along with weaker interest coverage, post transaction." The nearly $1.4 billion deal has received $1.1 billion in debt financing from investment bank B. Riley Financial.
• At the same time, analysts with S&P Global said they believe Rent-A-Center's credit profile "will improve following the acquisition as the company's near-term refinancing risk will be addressed." S&P put the retailer's debt on credit watch, with "positive implications."

Dive Insight:

Rent-A-Center's deal to go private, announced earlier this week, is the result of months of talking with potential suitors and pressure from investors to right the ship or sell itself after previous periods of sales and profit losses.

New CEO Mitch Fadel said Monday that the deal with Vintage reflected "the significant progress we have made to materially improve our performance and would not have been possible without the hard work and focus of our talented co-workers over the last several months." The company said last week that cost-cutting efforts are "significantly ahead of schedule," its performance had outperformed internal expectations, and that the retailer had been improving customer loyalty and retention through new pricing.

But analysts at Moody's noted that the company's turnaround still has to prove itself over the long-haul. In a June 12 note, Zuccaro pointed to the company's progress in its turnaround plan and financial profile. At the same time, he wrote that Rent-A-Center "will need to sustain incremental improvement over the very near term in order to improve performance, reduce leverage and better position itself to address these looming maturities."

S&P analysts, though, think the deal will help fix some of those upcoming debt issues given "our belief that its existing capital structure will be refinanced at the close of the transaction," the analysts wrote. S&P analysts said they expect to raise the retailer's credit rating following the transaction.

Both teams of credit analysts are waiting on more information about the deal's financing before making final decisions. Neither party to the deal has yet said how much Rent-A-Center's debt might increase following the transaction. Those details matter, as the ranks of bankrupt retailers increases. Many of those that have filed for Chapter 11 in the past two years were retailer with debt leftover from leveraged buyouts, among them Toys R Us, Nine West, Claire's Stores, Payless, Gymboree and many others.