COTY

What You Should Know

Coty Inc. is a global beauty company that makes and sells fragrances, color cosmetics, and skin and body care through a Prestige segment (licensed designer fragrances and cosmetics such as Gucci, Burberry, and Calvin Klein) and a Consumer Beauty segment (mass brands such as CoverGirl, Rimmel, and Sally Hansen). Selling cosmetics and fragrances is a permissible activity, so the business-activity screen passes. What makes COTY doubtful is leverage: Coty took on substantial debt in its 2016 acquisition of a large beauty portfolio and, despite steady deleveraging, still carried roughly $4 billion of debt with a net-leverage ratio well above the utility-style comfort zone, so its total-debt-to-market-cap ratio should be confirmed against the 33% threshold using the latest filings — the deciding screen it has historically failed. The receivables ratio and any interest income should be checked against their thresholds and the corresponding portion of returns purified. Because leverage is the binding constraint, COTY is generally screened as doubtful to non-compliant.