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Standard & Poor's Cuts Ethan Allen Ratings

The Associated Press

NEW YORK (AP) — Standard & Poor's Ratings Services said Tuesday it lowered its corporate credit and senior unsecured debt ratings for home furnishings retailer Ethan Allen Interiors Inc., citing "very weak" operating results.

The agency cut the ratings to "BB" from "BBB-" and removed all the company's ratings from CreditWatch with negative implications, a designation issued in February that meant they could have been cut further. It assigned a negative outlook.

Standard & Poor's also lowered its rating of $200 million in senior unsecured notes due 2015 of the company's wholly owned subsidiary, Ethan Allen Global Inc., to "BB" from "BBB-." It assigned a "3'' recovery rating, indicating the expectation of a meaningful — 50 percent to 70 percent — recovery in the event of a payment default.

"The rating actions reflect the company's very weak operating results in recent quarters, which have resulted in credit protection measures that are well below our expectations for the previous rating," Standard & Poor's credit analyst Rick Joy said in a statement.

Although the company has taken actions to reduce operating expenses and strengthen its competitive position, the agency said it believes Ethan Allen's near-term operating performance may decline further, "given the current weak economy and our expectation for continued challenges in the North American residential furnishings industry."

As of March 31, the company had about $203 million of total funded debt, excluding operating lease obligations, according to Standard & Poor's.

The agency said ratings on Ethan Allen reflect the company's vulnerability to reduced discretionary spending in an economic downturn and its exposure to the highly competitive residential furnishings industry.

Ethan Allen benefits from its brand strength and dedicated retail distribution network, Standard & Poor's said, adding that continued declines in the housing market and their effects on the furniture industry remain a significant rating concern.

Shares of Ethan Allen dropped 46 cents, or about 4 percent, to close at $11.14.