The proposed sale was announced on October 16.
The Outdoor Products business, to be rebranded as Revelyst, will still be separated from Vista Outdoors into a standalone publicly traded company. Shareholders of Vista Outdoor will receive shares of Revelyst and approximately $750 million of cash in aggregate in exchange for their Vista shares. Vista intends to repay all outstanding debt with proceeds. The remaining proceeds from the acquisition will remain on Revelyst’s balance sheet. CSG will issue new debt at the combined ammunition subsidiary and has $1.11 billion of fully committed debt financing in place. Vista will receive a $114.5 million termination fee if the transaction does not receive regulatory approval. The acquisition and Revelyst separation are expected to close in 2024 subject to shareholder and regulatory approval.
Ratings affirmed include the company’s Ba3 Corporate Family Rating (CFR), the Ba3-PD Probability of Default Rating (PDR), and the B1 senior unsecured notes rating. Moody’s downgraded Vista’s Speculative Grade Liquidity Rating (SGL) to SGL-2 from SGL-1. The outlook is negative. Previously, the ratings were on review for downgrade. The rating actions conclude the review for downgrade that commenced on May 17, 2022, following the company’s announced plan to separate its Outdoor Products and Sporting Products segments into two independent publicly traded companies.
Should the transaction close as proposed, Moody’s expects to withdraw its ratings because the rated debt will be repaid. The confirmation also reflects Moody’s anticipation that Vista Outdoor’s debt-to-EBITDA (incorporating Moody’s standard adjustments; 2.1x for the 12 months ended June 25, 2023) will remain below 3.0x over the next 12 months. This is despite the continued expected pressure on the company’s earnings and the EBITDA margin from lower sales volumes in both sporting and outdoor products because of ongoing normalization from elevated purchase levels during the pandemic and retailer inventory destocking. Moody’s also expects consumers economizing spending due to challenging economic conditions will also continue to reduce Vista Outdoor’s revenue and earnings. Moody’s nevertheless anticipates that solid free cash flow and roughly $200 million of excess availability on the asset-back lending credit facility (ABL) will be sufficient to fund roughly $44 million of quarterly term loan amortization and the final principal repayment on the secured term loan that matures in August 2024. The term loan balance was $205 million as of the fiscal quarter ended June 25, 2023.
The downgrade to SGL-2 from SGL-1 accounts for the approaching $205 million secured term loan debt maturity in August 2024 and the company’s potential reliance on its revolving credit facility to help partially fund the remaining term loan amortization and final maturity. Vista’s SGL-2 rating reflects good liquidity. Excess capacity on the $600 million ABL has declined in recent years because Vista has borrowed on its revolver to fund acquisitions. The company continues to generate good free cash flow even as operating conditions have deteriorated. Moody’s anticipates that balance sheet cash of $63 million as of June 2023, free cash flow exceeding $300 million over the next 12 months, and roughly $200 million of available capacity on the revolver as of June 25, 2023, provide ample resources to address seasonal working capital uses, $44 million of quarterly term amortization, and the remaining principal on the term loan at the August 2024 maturity.
S&P Global Ratings on October 23 similarly confirmed Vista’s debt ratings. For more read SGB Media’s coverage here.
Moody’s said in its analysis, “Vista Outdoor’s Ba3 CFR reflects its leading position as one of the largest ammunition manufacturers in the US, its leading brands in multiple niche outdoor product categories and favorable US outdoor activity participation trends. The rating also reflects Vista’s conservative 1.0x-2.0x net debt-to-EBITDA target and healthy free cash flow throughout ammunition industry cycles. Moody’s anticipates that Moody’s-adjusted debt-to-EBITDA of 2.1x as of the quarter ended June 25, 2023, will rise but remain below 3.0x over the next 12 months. Moody’s expects Vista Outdoor’s earnings to fall and leverage to rise over the next year due to ammunition and outdoor product sales declines because consumers will continue to economize spending in response to pressure to income from high inflation and interest rates. Further, demand is normalizing from pandemic highs when consumers had additional time to spend on outdoor recreational activities and also invested in guns/ammunition in response to a perceived danger from increasing crime. Vista’s credit profile is constrained by the volatility in non-law-enforcement-related ammunition demand and discretionary nature of outdoor products, and high social risks related to the sale of ammunition products. The company’s acquisition strategy and stated intention to split the company’s Outdoor Products and Sporting Products businesses create event risk. The ratings also reflect that the company’s planned $1.9 billion sale of its Sporting Products to Czechoslovak Group a.s. would lead to repayment of all of Vista Outdoor’s existing debt in 2024.
“Moody’s believes social risk will remain a key credit risk for Vista due to its participation in the gun ammunition industry. The high social risk negatively affects Vista’s rating and necessitates stronger credit metrics than comparably rated companies in order account for potential demand erosion from changing consumer sentiment or to address escalating costs to address legal and regulatory factors.”
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 Outdoor/Hevi-Shot
