Rating Action: Moody's assigns a B2 CFR to WH IntermediateGlobal Credit Research - 25 Jan 2022New York, January 25, 2022 -- Moody's Investors Service, ("Moody's") assigned first time ratings to WH Intermediate, LLC ("WHP" dba WHP Global), including a B2 corporate family rating ("CFR") and a B2-PD probability of default rating ("PDR"). At the same time, Moody's assigned B2 ratings to the proposed senior secured credit facilities issued by WHP's subsidiary, WH Borrower, LLC ("Borrower"), consisting of a $50 million revolving credit facility and $450 million term loan. The outlook is stable.The proceeds will be used to refinance existing indebtedness, fund a distribution to shareholders, put excess cash on balance sheet and pay related fees and expenses. Moody's ratings and outlook are subject to review of final documentation.The B2 CFR assignment reflects governance considerations, including high pro forma leverage of around 5.5 times and majority private equity ownership. It also reflects WHP's relatively short operating track record having been founded in 2019. While initial leverage is high, Moody's expects that leverage will decline to below 5 times over the next year as the company integrates recent sizable acquisitions and new license contracts as well as through potential further acquisitions using balance sheet cash. The rating also reflects the relatively stable and predictable revenue and cash flow streams derived from the licensed business model, as well as strong profit margins and interest coverage metrics.Assignments:..Issuer: WH Intermediate, LLC.... Corporate Family Rating, Assigned B2.... Probability of Default Rating, Assigned B2-PD..Issuer: WH Borrower, LLC....Senior Secured 1st Lien Term Loan, Assigned B2 (LGD3)....Senior Secured 1st Lien Revolving Credit Facility, Assigned B2 (LGD3)Outlook Actions:..Issuer: WH Intermediate, LLC ....Outlook, Assigned Stable ..Issuer: WH Borrower, LLC ....Outlook, Assigned Stable RATINGS RATIONALE WHP's B2 CFR considers governance considerations including high pro forma leverage of around 5.5 times lease-adjusted debt/EBITDAR and majority private equity ownership which tend to have financial policies that lead to sustained high financial leverage. Also, while many of its brands have a long operating history, the rating reflects WHP's relatively short track record having been founded in 2019, as well as integration risks associated with having completed several material acquisitions in the past two years and meaningful brand and licensee concentrations as a percentage of pro forma revenue. The rating is supported by the relatively stable and predictable revenue and cash flow streams derived from royalty payments received from licensees, which include significant guaranteed minimum amounts, with upside from license overage receipts being accretive to earnings and cash flow as it leverages the existing cost base. Further, the licensor business model is asset light with low capital costs, which supports robust operating margins, cash flows, and interest coverage metrics that are particularly strong for the rating category.Moody's expects WHP to maintain good liquidity over the next 12 months, supported by balance sheet cash and solid free cash flow generation. The company will have access to a new $50 million revolving credit facility due 2026. The revolver will contain a springing first lien net leverage ratio maximum of 6.75 times, which would be tested if the facility has more than 30% of the total commitment amount drawn at each quarter end. Moody's does not expect the covenant will be tested. The term loan will not contain financial maintenance covenants. Alternate sources of liquidity are available to the company if needed, in the form of brand trademarks and intellectual property.The B2 ratings assigned to WH Borrower's senior secured credit facilities are equal to the B2 CFR, as they comprise the only debt in the consolidated capital structure. The facilities are secured by a first lien on substantially all assets of WH Borrower and its wholly-owned domestic subsidiaries, including, pledges of equity in first-tier non-wholly-owned subsidiaries. The facilities are guaranteed by WH Borrower, LLC's current and future direct and indirect domestic wholly-owned subsidiaries, as well as its direct parent and financial reporting entity, WH Intermediate.As proposed, the secured term loan is expected to provide covenant flexibility that if utilized could negatively impact creditors. Notable terms include the following:** Incremental debt capacity up to the sum of (A) the greater of (1) $90 million and (2) 100% of Consolidated pro forma EBITDA, plus the unused portion of the general debt basket, plus (B) unlimited amounts subject to the closing date First Lien Secured Net Leverage Ratio (for pari passu secured debt). An amount up to the Incremental Starter Basket may be incurred with an earlier maturity date than the initial term loans.** The credit agreement permits the transfer of assets to unrestricted subsidiaries, up to the carve-out capacities, subject to "blocker" provisions which will include restrictions on the ownership of material intellectual property of the Borrower and its restricted subsidiaries by any unrestricted subsidiary and any transfer of such intellectual property to any unrestricted subsidiary.** Non-wholly-owned subsidiaries are not required to provide guarantees; dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees, subject to certain "Chewy" protective provisions limiting such guarantee releases.** There will be customary affected lender voting provisions with respect to amendments that provide for subordination of the payment of the obligations and/or liens on the collateral, in each case as set forth in the facilities documentation.The above are proposed terms and the final terms of the credit agreement may be materially different.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects Moody's expectation for modest deleveraging over the next year as the company anniversaries recent sizable acquisitions and new license contracts, and through potential further acquisitions using balance sheet cash.The ratings could be downgraded if the company experiences weaker than anticipated operating performance resulting from challenges in integrating acquired brands, the non-renewal of licenses, or renewals of its licenses at materially lower revenue streams. More aggressive in its financial policies or a material deterioration in liquidity could also result in a downgrade. Specific metrics include debt-to-EBITDA sustained above 6 times or EBITA-to-interest sustained below 2.25 times.A ratings upgrade is unlikely over the near-to-intermediate term given the company's short track record, small scale, and Moody's expectation that cash flow will likely support acquisition activity. Over time, ratings could be upgraded if the company maintains its operating performance and more conservative financial policies through a demonstrated willingness to sustain debt-to-EBITDA below 4.5 times and EBITA-to-interest expense above 3 times.Headquartered in New York, NY, WHP Global is a brand management company with a portfolio of brands that include Anne Klein, Joseph Abboud, Lotto, Toys "R" Us, Babies "R" Us, and Geoffrey® the Giraffe, among others. The company is majority owned by funds managed by Oaktree Capital Management, L.P., a global investment manager specializing in alternative investments, with the remaining equity owned by management and others. WH Borrower, LLC is the borrowing entity in the credit group, and WH Intermediate is its direct parent, guarantor and financial reporting entity. WHP Global is privately owned and does not publicly disclose its financial information. Pro forma annual revenue exceeds $100 million.The principal methodology used in these ratings was Apparel published in June 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1276303. 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. 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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. 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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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. Michael M. Zuccaro Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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