S&P cuts Barneys credit rating, warns on liquidity

NEW YORK, April 13 (Reuters) - Standard & Poor's on Monday cut its ratings on Barneys New York Inc to a deeply distressed level and warned that vendors may tighten terms or limit shipments to the luxury retailer as its liquidity declines.

S&P cut Barney's credit ratings two notches to CCC, eight steps below investment grade, from B-minus. The outlook is negative, indicating an additional downgrade is more likely in the next two years.

"The downgrade reflects the deteriorating liquidity position of the company as demonstrated by the need for a cash infusion by Istithmar World," S&P said in a statement.

The New York Post reported this month that Istithmar World, the Dubai investment agency that owns Barneys, will inject at least $10 million into the struggling high-end retailer. For details, see [ID:nN05328336].

"Also, we are becoming increasingly concerned that vendors may tighten terms or limit shipments to the company," S&P added.

Barneys' revenues are expected to decline as retail sales at upscale department stores remain weak, while increased promotional activity and negative operating leverage is likely to pressure the company's margins, S&P said.

"We do not expect that cash on hand, cash flow from operations, and availability under the company's $280 million revolver are likely to be sufficient for working capital needs and capital expenditures," S&P said.

However, "we anticipate that shortfalls in free operating cash flow will likely be covered by additional support," the rating agency said. (Reporting by Karen Brettell; Editing by James Dalgleish)