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 CPRI 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 company said it has secured $8 billion in committed bridge financing from Bank of America and Morgan Stanley.
Tapestry TPR said it’s determined 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,” Moody’s Vice President-Senior analyst Raya Sokolyanska said.