Moody’s lowered the debt ratings of YS Garments, LLC, doing business as Next Level Apparel, due to refinancing risk associated with the Torrance, CA-based clothing company’s revolver, due in February 2026, and its term loan, due in August 2026.
Moody’s said the downgrades also reflect its weak credit metrics, with debt/EBITDA and EBITA/interest coverage estimated at approximately 7.0x and 0.8x, respectively, at Q1 2025, as EBITDA remains at depressed levels following three consecutive years of weak performance.
The debt ratings lowered include corporate family rating (CFR) to Caa3 from Caa2 and probability of default rating (PDR) to Caa3-PD from Caa2-PD. Moody’s also downgraded Next Level’s backed senior secured bank credit facilities ratings to Caa3 from Caa2. The outlook remains negative.
Moody’s said, “While the company saw EBITDA improvement in the first half of 2025, we attribute some of the strength to a pull-forward in purchases by customers ahead of tariff concerns. The environment remains challenging for discretionary spending, and the company is exposed to the imposition of reciprocal tariffs above current levels, given its dependence on imported product from Central America, which is somewhat mitigated by Next Level Apparel’s high use of US cotton.
“Additionally, Next Level Apparel has received multiple temporary waivers from lenders related to its inability to maintain compliance with its financial maintenance covenant at year-end 2024 and to file timely annual audited financial statements (and is currently operating under one such waiver through July 2025). Although we expect the company to maintain between $10-$25 million in cash through year-end 2025, the company must refinance its 2026 maturities and is currently discussing alternatives with lenders that may include an equity injection. The structure, timing and ultimate execution of a transaction or an extension of its current temporary waiver remains uncertain.”
Moody’s said that Next Level Apparel’s Caa3 CFR also reflects its high concentration of sales with two large distributor customers, which can cause significant volatility in performance and the risks of private equity ownership. The rating is supported by Next Level Apparel’s recognized position in the premium blanks and the limited fashion risk associated with its product. Moody’s added that “consideration is also given to the shift in consumer preference towards higher quality basic apparel designs, fabric, and fit and Next Level Apparel’s asset-light and fully outsourced production model which in previous stable operating environments have allowed for strong profit margins that were consistent with many premium apparel brands.”
The negative outlook reflects the company’s weak liquidity, including its near-term maturities as well as its depressed revenue and EBITDA levels.
Next Level designs and provides branded active wear to the premium basic segment of the US wholesale wearables promotional products industry. Private equity firm Blue Point Capital Partners acquired a majority stake in the company in August 2018.
Image courtesy Next Level Apparel
