Belk upgraded by S&P Global Ratings to CCC+ after 1-day bankruptcy restructuring

Belk Inc. was upgraded on Feb. 25 by S&P Global Ratings to CCC+, from D, after emerging from a one-day bankruptcy. Ratings also assigned a B- rating to the company's new $300 million first-lien first-out term loan, and a CCC- rating to both the new $815 million first-lien second-out term loan and the $110 million second-lien term loan.

S&P Global Ratings said that as part of the recapitalization through bankruptcy, existing lenders and private equity owner Sycamore Partners injected cash to cover accrued debt obligations and projected working capital needs. Ratings estimates that operations will generate “sufficient liquidity to cover its reduced cash-based debt obligations over the next 12 months.”

Ratings believes Belk “faces significant operating pressure as the pandemic continues to weigh down sales and secular headwinds persist, leading to very high leverage and weak cash flows.” Ratings believes Belk’s capital structure is “unsustainable" based on its projection of a "slow and limited recovery trajectory for department store operators.”

S&P Global Ratings noted that Belk's store traffic was declining prior to the pandemic, a trend that accelerated through fiscal 2021 (ended Jan. 30, 2021) as store closings and COVID-related health concerns prompted customers to shift to online purchasing. Ratings believes customers “will be slow to return to in-store shopping,” even after the vaccine is widely distributed.

Ratings said Belk has invested heavily in omnichannel capabilities, enabling it to capture some of the shift in buying habits, and partially offsetting the weakness in its store traffic. But the rating agency added that given the competitiveness of online retailing coupled with Belk's relatively small size, it does not believe Belk will be able to fully recapture lost brick-and-mortar revenue.

Belk is a regional department store operator with 291 locations as of Jan. 30, 2021, primarily in the Southeastern U.S., and with an online shop.