Dive Brief:

• An expanded version of Fitch Ratings’ "loans of concern" list emailed to Retail Dive includes several retailers among the companies that the bond ratings firm publicly tracks for risk of default. Fitch’s "primary loans of concern" list remained unchanged from last month in terms of retailers, but its "secondary list," always a part of analysts' methodology but previously unpublished, included 11 retailers.
• Those retailers on the secondary list were: Neiman Marcus (with a total outstanding loan balance of $2.8 billion), Academy Sports ($1.69 billion), J. Crew ($1.37 billion), Fullbeauty Brands ($1.17 billion), Savers Inc. ($679 million), Talbots ($585 million), Land’s End ($498.3 million), Bluestem Brands ($471.4 million), Spencer Spirit Holdings ($454 million), Cole Haan ($309 million) and Indra Holdings ($245 million).
• Fitch also included an "Other Noteworthy Retailers" list — the only such list among the industries it covers in the loans of concern report. On that list was Petsmart (with a total outstanding loan balance of $4.25 billion), Belk Inc. ($2.05 billion), Ascena ($1.6 billion), Tailored Brands ($1.04 billion) and J. Jill Group ($284.5 million).

Dive Insight:

In a year of record retail bankruptcies, financial risk profiles can shift quickly.

Since June, two retailers have been dropped from Fitch’s primary "loans of concern" list, and not because they pulled off dramatic turnarounds. True Religion filed for Chapter 11 bankruptcy in July, and J. Crew pushed its debt maturities out a few years with an out-of-bankruptcy debt restructuring.

But Fitch still has a close eye on J. Crew, as it sits near the top of its "secondary loans of concern list." Fitch analysts noted that this list is comprised of companies that have "additional measures of financial flexibility, greater liquidity runway and/or potentially more tenable capital structures than" those on the primary list. But the analysts still consider them of some risk given low bond ratings, discounted debt in the secondary market, "adverse" market information and events and input from analysts.

David Silverman, senior director of Fitch’s retail coverage, told Retail Dive that the additional lists are meant to give investors greater transparency into the analysts' own process for determining the debt issuers on the main "loans of concern" list by including companies they see as "on the bubble."

Fitch added the "other noteworthy retailers" list — which Fitch analysts noted were "are unlikely to default in the near term" but they were monitoring — because of the "conversations out there in the marketplace" around retail bankruptcies, Silverman said.

Trying to predict the future, especially in a retail world that seems to shift by the quarter, is tricky work, to say the least. Consider Toys R Us as an example. Although the company sat under a $5 billion debt pile and struggled with declining sales for years, few if any analysts saw bankruptcy as being imminent, given that the company seemed to have the liquidity to make it at least through the holidays.

But as stories broke that the company had brought in restructuring advisors and suppliers pulled back or demanded stricter financial terms to protect themselves, Toys R Us faced a sudden, new liquidity crunch that drove it into bankruptcy court.

With a heightened rate of retail bankruptcies this year, which could continue into next year, retailers are also struggling to lock down new financing to build inventory or pay down existing debt, which could in turn heighten their risk of default.

"Inherent in the theme of increasing news around some of the larger names doing distressed debt exchanges or going through a bankruptcy process is inability to find funds to either sustain the business or to refinance current or upcoming maturities," Silverman said. "I think one could definitely draw the line between the kind of activities we’ve seen this year and heightened concerns around these secular challenges, particularly in the mall."

While not facing default, Nordstrom recently dropped a bid to take itself private, reportedly because the retailer, while relatively strong among department store chains, had trouble finding favorable financing terms.