S&P Global Ratings removed the debt ratings of Vista Outdoor, Inc. from CreditWatch with negative implications following the company’s announcement that it planned to sell its sporting products business to Czechoslovak Group A.S for $1.91 billion on a cash-free, debt-free basis.
Upon completion of the sale of the sporting products business, first announced on October 16, the outdoor products business, to be named Revelyst Inc., will become an independent publicly traded company. Vista will repay all of its existing debt following the close of the transaction.
S&P said it expects the existing combined company will maintain S&P Global Ratings-adjusted debt to EBITDA below S&P’s 2.5x downside threshold before the closing of the transaction in calendar 2024.
As a result, S&P removed Vista Outdoor’s ratings from CreditWatch, where it was placed on November 9, 2022, with negative implications, and affirmed its ‘BB’ issuer credit rating on Vista. S&P anticipates withdrawing its ratings on the company after the transaction closes and it repays the debt in calendar 2024.
S&P also affirmed its ‘BB’ issue-level rating on the company’s $500 million senior unsecured notes due in 2029. The recovery rating remains ‘3’, reflecting its estimate of meaningful (50 percent to 70 percent; rounded estimate 65 percent) recovery in the event of a payment default.
S&P’s stable outlook reflects its expectation that despite near-term demand headwinds, the existing company will maintain S&P Global Ratings-adjusted debt to EBITDA below 2.5x before the sale of the sporting goods business. S&P said in its analysis:
“The rating affirmation reflects our expectation the existing combined company will maintain leverage below 2.5x before the sale of the sporting goods business as free operating cash flow (FOCF) generation facilitates deleveraging despite significant demand pressure.
“Vista’s organic sales decreased nearly 24 percent during the first quarter of fiscal 2024. Organic sales at the company’s sporting product and outdoor product segments were down about 26 percent and 20 percent, respectively, during the quarter. This marked the fourth consecutive quarter of double-digit percent declines in organic sales for Vista. Following a surge of participation in outdoor recreation during the pandemic years, normalization of consumer habits and high channel inventory levels has led to lower sales across most of the company’s product categories. Higher material costs have also pressured its profitability. The company’s S&P Global Ratings-adjusted EBITDA for the 12-month period ended June 25, 2023, declined about 33 percent year over year to $536 million.
“At the same time, Vista issued new debt and borrowed under its asset-based lending (ABL) facility to finance acquisitions. During fiscal 2023, it acquired Fox Racing for $575 million and Simms Fishing Products for $192.5 million. The company’s lower profitability and higher borrowings led to an increase in its S&P Global-Ratings adjusted debt to EBITDA to 2x for the 12 months ended June 25, 2023, compared to 0.9x for the same prior-year period. Nonetheless, these leverage levels remain within our expectations for a ‘BB’ rating, in part, because of the company’s continued good FOCF generation. We estimate Vista generated FOCF of over $400 million for the 12 months ended June 25, 2023. While we expect continued lower demand during fiscal 2024, we believe the company will generate healthy levels of FOCF, which will facilitate debt repayment and sustained S&P Global Ratings-adjusted debt to EBITDA of about 2x for fiscal 2024.
“The company intends to sell its sporting goods business and pay off its existing debt.
“On October 16, 2023, Vista announced that it had entered into a definitive agreement to sell its sporting products business, which manufactures and sells various caliber ammunition for hunting and shooting activities, to Czechoslovak Group A.S. for $1.91 billion on a cash-free, debt-free basis. The proposed transaction values the sporting goods business at about 5x its fiscal 2024 EBITDA, including stand-alone costs. The company intends to repay all of its existing debt with the proceeds of the transaction, including its only rated $500 million senior unsecured notes due in 2029. Vista’s remaining outdoor products business was named Revelyst and will become a stand-alone publicly traded company.
“To complete the sale of the sporting products business, Vista will first separate Revelyst from its sporting products business. Stockholders of Vista Outdoor will receive shares of Revelyst and approximately $750 million in cash. The transaction will be treated as a taxable sale of Vista Outdoor shares for Revelyst shares and of the cash consideration Vista shareholders will receive.
“Our stable outlook reflects our expectation the company will maintain adjusted leverage below 2.5x before it sells its sporting goods business and likely repays all debt.”
Vista Outdoor’s Sporting Products segment includes CCI, Federal, HEVI-Shot, Remington, and Speer. The Outdoor Products segment includes Bell, Bushnell, Bushnell Golf, CamelBak, Camp Chef, Foresight Sports, Fox Racing, Giro, QuietKat, Simms Fishing, and Stone Glacier.
Photo courtesy Vista/Camelbak
