Moody's Investors Service has reaffirmed Coty Inc.'s Ba1 Corporate Family Rating but revised the outlook from stable to negative, pointing to operating results that fell short of expectations.
The rating agency left several related ratings unchanged, including Coty's Ba1-PD Probability of Default Rating, Ba1 senior secured first lien revolving credit facility rating, Ba1 senior secured ratings and Ba1 senior unsecured ratings. Moody's also kept the company's SGL-2 speculative grade liquidity rating intact.
In explaining its decision to affirm the Ba1 ratings, Moody's noted Coty's continued capacity to produce free cash flow and the expectation that interest costs will decline after the company uses proceeds from the Wella sale to repay debt. Those factors are expected to support a gradual pace of deleveraging. Moody's estimates indicate Coty had reduced leverage to roughly 3.5x debt to EBITDA as of December 2025.
Despite these positive elements, the outlook was shifted to negative because recent weaker operating performance is likely to prolong elevated leverage, the agency said. Moody's projects that leverage will tick up to about 4.0x in fiscal 2026 before moving back down to the mid-three times range in 2027. That path would leave leverage higher than the level the agency considers appropriate for Coty's current rating.
Moody's also cited management change and strategic uncertainty as additional considerations. Coty is undergoing a CEO transition from Sue Nabi to Markus Strobel, and is conducting a strategic review that was announced last fall. Markus Strobel arrives with more than 30 years of experience in beauty and personal care at Procter & Gamble, including nearly a decade focused on fine fragrances.
The agency expects Coty to generate annual free cash flow in the range of $250 million to $300 million, assuming disciplined capital expenditure and working capital management. Moody's emphasized that Coty's product mix remains concentrated in fragrance and color cosmetics, categories that Moody's views as more susceptible to earnings volatility in an economic downturn.
For Coty to be considered for an upgrade, Moody's outlined several conditions: sustained strong operating performance with organic revenue growth, maintained EBITDA margins, greater revenue diversification, and a reduction of debt-to-EBITDA to below 2.75x.
Sectors affected: Consumer goods, cosmetics, credit markets.