Playboy's Credit Rating Cut Fuels Concern About Future

Bob Johnson

NEW YORK — Standard & Poor's (S&P) has downgraded Playboy Enterprises Inc corporate credit rating to CCC+ from B- due to weak performance only four months after receiving $185 million in loans, causing speculation about the future of the iconic brand.

S&P said that a 5 percent drop in earnings might put Playboy at risk of violating covenants in its financing pact related to its interest expense and debt in the remainder of 2013 that could jeopardize its ability to access its $10 million revolving credit line.

Playboy’s disappointing second quarter performance reportedly reflects a series of stalled licensing deals in 2013 — its recent core strategy.

"We are lowering the corporate credit rating to CCC+ from B-. We are also lowering the issue level ratings on the company’s senior secured debt to B- from B. The developing outlook reflects the potential for a further downgrade in the next 12 months if the company faces further delays in securing new licensing contracts, which would increase the company ‘s risk of violating the total leverage and interest coverage covenants," S&P said.

Although the downgrade did not formally warn of bankruptcy, reported that some verbiage in the S&P downgrade hints at more serious financial troubles including, “recent operating shortfalls,” “inability to date to meet operating goals,” “weak credit measures and aggressive financial policy,” “risks surrounding the long-term success of this business model,” and more.

S&P however did say it could upgrade Playboy ’s corporate credit rating if it improves operating performance or receives an amendment that raises its covenant headroom above 10 percent.

“Playboy is in the midst of a multiyear turnaround, which is proceeding toward our long-term objective of growing revenues,” Jeff Majtyka, a Playboy spokesman told Bloomberg. “While the timing of closing new licensing deals in our pipeline is prone to shift and can affect our results quarter to quarter, we remain in full compliance with our covenants.”

S&P will be keeping an eye on Playboy’s debt. The company will face another downgrade in the next 12 months if it doesn’t secure its licensing contracts. A CCC rating would mean Playboy is vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for it to meet its financial commitments.

Founder Hugh Hefner and private-equity firm Rizvi Traverse Management LLC took Playboy private in March 2011.