Linens 'n Things Inc. has some dirty laundry. After rumors surfaced that the company was headed for a prepack bankruptcy filing Tuesday, Fitch Ratings placed the Clifton, N.J.-based retailer's ratings on its watch negative list, meaning that a possible downgrade is on the horizon. Fitch also lowered its rating on Linens 'n Things $700 million asset-based revolving credit facility to "CCC+/RR3" from "B-/RR2."
Continue reading below
The ratings actions was based on "worsening operating performance which has resulted in continued deteriorating credit metrics and negative cash flow generation," according to Fitch. In other words, the company is bleeding cash. Last year, Linens registered $26.2 million of negative adjusted Ebitda, falling from a positive $61.6 million in 2006. Meanwhile, one of the company's lifelines is $302.9 million available under its credit facility as of Dec. 29, 2007, but the rating agency still remains concerned about the company's liquidity position.
"Given Linens' negative cash flow, the difficulty of finding debt in today's markets and a dive in consumer confidence, it remains to be seen how much longer the chain can stay afloat," The Deal's Christine Idzelis said in a recent article. - Gerald Magpily
See TheDeal.com: LBO'd retailers mostly fare well
See Dealscape: In Linens 'n Things prepack talk, all roads lead back to Apollo
