Debt from Huntington Beach-based Quiksilver Inc. is a little less junky.
The debt rating arm of Moody’s Corp. upped its rating on Quiksilver one notch after the clothing maker completed a swap of stock for debt earlier this month.
Moody’s lifted Quiksilver’s default-probability rating and overall rating to “B2” from “B3.” The rating still falls under what’s known as speculative, high yield or junk status.
A rating on $400 million in unsecured debt from Quiksilver was raised to “Caa1” from “Caa2,” the middle tier of Moody’s junk ratings.
The upgrade came after Quiksilver earlier this month completed an exchange of shares for $140 million in debt in a move that bolstered the company’s once crippling balance sheet.
Quiksilver exchanged 31.1 million shares worth about $140 million for the debt, which was held by with New York-based Rhone Group LLC.
The debt stems from a deal struck with Rhone last year that helped Quiksilver finance a U.S. line of credit and consolidate its European debt.
The Rhone financing was seen as a lifesaver for Quiksilver, the largest maker of clothes inspired by surfing, skateboarding and snowboarding.
The company nearly was sunken by 2005’s $560 million ill-fated buy of French ski maker Rossignol.
Quiksilver ended up unloading money-losing Rossignol in a $50 million fire sale in 2008 but was left with about $1 billion in short- and long-term debt from the deal and borrowing to keep Rossignol afloat before the sale.
The company still has about $850 million in long-term debt as of April 30.
Quiksilver is expected to rework credit lines with better terms and strike a deal to pay off $25 million in remaining debt owed to Rhone.
The moves are expected to boost profits, as the Rhone loans carried a 15% interest rate, steeper than Quiksilver’s debt before the financing deal.
Quiksilver has given up a sizable chunk of the company to rework its finances. Rhone now owns nearly a third of Quiksilver, up from 16% before.
The company said it entered a pact with Rhone that caps its ownership.
