Moody’s downgraded VF Corp.’s unsecured debt ratings due to the company’s issuance of a $1.5 billion senior secured asset-based revolving credit facility (ABL) due August 2030 to replace its $2.25 billion senior unsecured revolving credit facility due November 2026.
Moody’s stated, “The new ABL is senior in priority and has a security interest in substantially all of VF Corp.’s property and assets, which reduces our expected recoveries for the senior unsecured notes. Although we expect VF Corp. to maintain adequate liquidity with the company’s borrowing bases supporting full access to the $1.5 billion ABL during its peak fiscal third quarter borrowing period, the smaller revolver size and pledging of security reduce the company’s overall financial flexibility.”
The ratings agency downgraded VF’s senior unsecured notes ratings to Ba3 from Ba2, senior unsecured shelf and senior unsecured MTN program ratings to (P)Ba3 from (P)Ba2, subordinate shelf rating to (P)B1 from (P)Ba3 and preferred shelf rating to (P)B2 from (P)B1.
At the same time, Moody’s affirmed VF’s corporate family rating (CFR) at Ba2 and its probability of default rating (PDR) at Ba2-PD. Its speculative grade liquidity rating (SGL) remains unchanged at SGL-3. The outlook remains negative.
Moody’s said in its analysis, “VF Corp.’s Ba2 CFR is supported by its position as one of the largest global apparel, footwear, and accessory companies, with revenue of about $9.5 billion for the twelve months ended June 2025. Although the company has multiple brands in its portfolio, its financial performance is weighted toward The North Face and Vans, its two largest brands. VF Corp.’s ratings also reflect its public commitment to a 2.5x leverage target (per the company’s definition). However, debt/EBITDA is currently elevated at 5.4x for the LTM ended June 28, 2025, and is expected to decline to around 4.5x at the end of VF Corp.’s fiscal 2026. EBITA/interest coverage is also projected to remain depressed at around 2.5x. The CFR reflects VF Corp.’s need for a significant turnaround of its Vans business. While we view the transformation initiatives positively, the actions continue to be extensive. In addition, the difficult consumer spending environment and uncertain tariff environment present notable risks to realizing and sustaining the revenue and margin improvements required to improve credit metrics. The company has reduced costs by approximately $300 million, with a significant portion to be reinvested, as several organizational changes have supported streamlining processes and work to offset higher tariff costs, which are estimated to be approximately $250-270 million annually unmitigated. The company expects these costs to be reduced to approximately $125-150 million annually, with $60-70 million expected to be incurred in fiscal 2026 and all tariffs to be fully mitigated in 2027.
“The SGL-3 reflects our expectation for adequate liquidity as revolver borrowings are expected to partially repay its upcoming EUR 500 million March 2026 debt maturity, as we project free cash flow of approximately $300 million in fiscal 2026. The company’s new $1.50 billion senior secured revolving credit facility (unrated) is subject to a global borrowing base that is composed of US, UK and Canada eligible receivables and inventory. The facility also includes a $400 million sub-facility for borrowing in Switzerland and a $75 million sub-facility for borrowing in Germany (both also subject to borrowing bases of eligible receivables and inventory). Its new revolver size is significantly smaller than its prior facility and is also subject to borrowing bases, which are dependent on its inventory and receivable levels. VF Corp.’s new ABL has no covenant limitation on borrowings until the company is below 10 percent of its Line Cap (which is the lesser of the global borrowing base or its $1.5 billion line commitment). The company does have a test for restricted payments should borrowing go below 15 percent of the Line Cap.
“The negative outlook is supported by our view that the consumer environment will continue to be challenging as higher tariffs must also be mitigated, presenting significant risks to earnings growth as its credit metrics remain weak for its Ba2 rating.”
Image courtesy VF Corporation
