Moody’s Investors Service, a leading source for credit rating, announced on Wednesday it was lowering its ratings on Quiksilver Inc. to “B2″ — a speculative or “junk bond” rating, due to the company’s weakening liquidity and reliance on short-term debt. The latest in the company’s financial woes comes on the heels of what should have been good news for the company, the finalization of the Rossignol sale. However, the company experienced weakened liquidity following the sale, due to the reduction in sales price after funding Rossignol’s winter seasonal production.

Quiksilver’s stock dropped below the dollar mark today and is currently trading at 98 cents per share.

Here’s the AP story:

NEW YORK (AP) — Moody’s Investors Service on Wednesday lowered its ratings on outdoor apparel maker Quiksilver Inc., due to weakening liquidity and reliance on short-term debt following the sale of its Rossignol ski equipment business.

Last week, Quiksilver finalized the sale of its Rossignol to Chartreuse & Mont Blanc. It had been trying to sell the unit — which had been incurring operating losses — for much of the year.

Quiksilver received 30 million euros, or $37.5 million, for the unit.

Moody’s said the company has weakened liquidity following the sale, and also received smaller-than-expected leverage from the sale.

While the deal was considered a positive since it was losing money, “Quiksilver funded the seasonal build in Rossignol’s inventory through the date of sale, and the net cash sale proceeds (which were reduced in the revised final purchase price) were insufficient to retire the associated working capital debt,” Moody’s said in a statement.

Thus, the company continues to have a “significant” level of short-term debt in its capital structure, Moody’s said.

Moody’s downgraded the company’s corporate family rating and probability of default rating two notches to “B2″ — a speculative or “junk bond” rating five notches below investment-grade status — from “Ba3,” which is three notches below investment-grade status.

Moody’s also lowered the company’s speculative grade liquidity rating to SGL-4, the lowest rating, from SGL-3.

All ratings — except for the speculative-grade liquidity rating — are on review for a further possible downgrade.

Tags: moodys, quiksilver

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