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Moody's upgrades Rent-A-Center on successful turnaround plan


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Moody's upgrades Rent-A-Center on successful turnaround plan

Moody's Investors Service on May 22 upgraded Rent-A-Center Inc.'s ratings, including its corporate family rating to B1 from B2, citing the U.S. furniture and electronics rent-to-own company's successful implementation of its strategic turnaround plan and focus on debt reduction.

The rating agency also upgraded Rent-A-Center's probability of default rating to B1-PD from B2-PD, its senior secured credit facility to Ba1 from Ba2 and its senior unsecured debt ratings to B2 from B3. Rent-A-Center's speculative grade liquidity rating remains unchanged at SGL-3, while the company's outlook was revised to stable from developing.

Moody's said it expects the company to be able to successfully refinance its capital structure from further operating improvement, earnings growth, low net debt levels and further debt reduction plans.

The agency said Rent-A-Center's operating performance and credit metrics have significantly improved over the past year following the implementation of its strategic turnaround plans and debt reduction, which Moody's believes will continue in 2019.

The Plano, Texas-based retailer started exploring strategic and financial alternatives in October 2017, which was aimed at incurring significant cost savings for the company as part of its plan.

Moody's noted that Rent-A-Center had approximately $238 million of balance sheet cash as of March 31, excluding the approximately $60 million of after-tax proceeds expected to be received on or before May 28 as a result of the company's terminated merger with Vintage Capital Management LLC.

The private equity firm offered to buy Rent-A-Center in June 2018 in a $1.37 billion deal, but the plan failed to proceed after Vintage Capital had not been able to provide an extension notice.

Meanwhile, Moody's said Rent-A-Center's rating is constrained by the need to extend its debt maturity profile, moderate business risk associated with the rent-to-own industry, and the potential impact from government legislation or litigation that may happen from time to time.

The agency said an upgrade is likely if Rent-A-Center improves its liquidity position by extending its debt maturity profile while sustaining improvement in operating performance and credit metrics, among other factors.

Conversely, Moody's said it could downgrade the ratings if the company's operating performance or liquidity weakens unexpectedly through falling earnings, free cash flow turning negative or an inability to address its looming debt maturities over the very near term.