: Moody’s puts Tapestry’s rating on review for a possible downgrade after $8.5 billion Capri deal

Moody’s Investors Service placed Tapestry Inc.’s Baa2 rating on review for a possible downgrade on Thursday, after the company said it’s buying Capri, the parent of Michael Kors, for about $8.5 billion in a deal that will be mostly funded with debt. the move “reflects governance considerations, including the significant increase in debt with the Capri acquisition and Tapestry’s new leverage target, which will drive a sustained increase relative to the company’s typical under 1x net debt/EBITDA,” Moody’s said in a statement. The deal will be funded with bonds, term loans and balance sheet cash. The company said it has secured $8 billion committed bridge financing and aims to retain its investment-grade rating by suspending share buybacks. “Tapestry’s acquisition of Capri will increase its scale and customer reach by adding three valuable brands to its global luxury portfolio, while applying Tapestry’s direct-to-consumer focus and technology platform to grow profitability at Michael Kors, Versace and Jimmy Choo”, said Moody’s Vice President-Senior analyst Raya Sokolyanska. “At the same time, the company’s new financial policy will result in materially higher leverage than in the past, and the acquisition itself will temporarily raise leverage well above the company’s under 2.5x target.” The stock was down 15%.

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