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L Brands, Inc. -- Moody's upgrades L Brands' CFR to Ba3

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Rating Action: Moody's upgrades L Brands' CFR to Ba3Global Credit Research - 12 Apr 2021New York, April 12, 2021 -- Moody's Investors Service, ("Moody's") today upgraded L Brands, Inc. ("L Brands") corporate family rating ("CFR") to Ba3 from B2 and its probability of default rating ("PDR") to Ba3-PD from B2-PD. The company's existing senior unsecured guaranteed notes were also upgraded to Ba3 from B2 and the senior unsecured unguaranteed notes were upgraded to B2 from Caa1. The speculative grade liquidity rating was upgraded to SGL-1 from SGL-2. The outlook was changed to stable from positive.The upgrade reflects governance considerations particularly L Brands $1 billion debt repayment including the $750 million of senior secured notes which were issued at the onset of the pandemic. The company, which curtailed share repurchases and dividends at the onset of the pandemic, has returned to a balanced financial policy with a dividend that is approximately half the size it was prior to the pandemic despite its outsized performance and a $500 million share repurchase authorization. The upgrade in its Speculative Grade Liquidity rating to SGL-1 from SGL-2 reflects the company's significant excess cash of $3.9 billion at fiscal year end (before the $1 billion planned debt reduction) and expected free cash flow generation in 2021 with no mandatory debt maturities over the next 12-18 months. Upgrades: ..Issuer: L Brands, Inc. .... Probability of Default Rating, Upgraded to Ba3-PD from B2-PD.... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2.... Corporate Family Rating, Upgraded to Ba3 from B2....GTD Senior Unsecured Regular Bond/Debenture, Upgraded to Ba3 (LGD3) from B2 (LGD4)....Senior Unsecured Regular Bond/Debenture, Upgraded to B2 (LGD6) from Caa1 (LGD6) Outlook Actions: ..Issuer: L Brands, Inc. ....Outlook, Changed To Stable From PositiveRATINGS RATIONALEL Brands' Ba3 CFR is supported by its strong Bath & Body Works operations, which generate significant free cash flow and improving operations at Victoria's Secret. L Brands benefits from significant scale with January 30, 2021 fiscal year end revenues of about $11.8 billion. The rating is also supported by very good liquidity as it has improved its operational performance and reduced debt and extended debt maturities. L Brands has benefited from strong inventory management which supported improved merchandise margins at both of its divisions in 2020. Faster turns have historically enabled the company to ensure product freshness and higher inventory turns relative to other specialty retail operators. The company remains focused on decentralizing its business with the ultimate goal of separating its two divisions.The stable outlook reflects that outsized performance of Bath and Body Works has benefitted from significant tailwinds from a change in consumer spending caused by COVID-19, which although expected to normalize is expected to remain solid. The recent improvement in operations at Victoria's Secret is expected to continue. The stable outlook also reflects Moody's expectation that the company will continue to maintain a balanced financial policy.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if the company increases its revenue scale, demonstrates consistent organic revenue growth and operating margin expansion, while debt/EBITDA is sustained below 2.75x and EBIT/interest expense approaching 4.0x. A ratings upgrade will also require the company to maintain at very good liquidity, and Moody's expectations of balanced financial policies that support credit metrics at those levels.Ratings could be downgraded if the company's operating performance deteriorates with consistent revenue declines or profit margin deterioration, if debt/EBITDA is sustained above 3.75x, or if liquidity weakens following the company's failing to generate free cash flow as anticipated or the ABL revolver is drawn more than expected. Ratings could also be downgraded if financial policies become more aggressive, including undertaking a large debt-financed acquisition or dividend distribution that materially increases financial leverage.Headquartered in Columbus, Ohio, L Brands, Inc. operates 2,669 company-owned specialty stores in the United States, Canada, and Greater China, and its brands are also sold in 746 franchised locations worldwide as of January 30, 2021. Its brands include Victoria's Secret, Bath & Body Works, and PINK.The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Christina Boni Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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