Moody's Investors Service assigned a B1 rating to Bass Pro's proposed $1.74 billion senior secured term loan due 2020 and affirmed its existing ratings, saying the retailer has a track record of rapidly reducing its debt ratios within 18 months of issuing new debt. 

The ratings agency also affirmed the Ba3 Corporate Family and Ba3–PD Probability of Default Ratings of Bass Pro Group, LLC. The ratings outlook is stable.

Proceeds from the proposed term loan will be used to refinance the company's existing term loan, repay outstanding revolver and FILO loan balances and pay a $300 million distribution to shareholders. The assigned rating is contingent upon closing of the transaction and review of final documentation.

The following ratings were assigned:

• $1.74 billion senior secured term loan due 2020 at B1 (LGD 4)
• The following ratings have been affirmed:
• Corporate Family Rating at Ba3;
• Probability of Default Rating at Ba3-PD.

The following rating was affirmed and will be withdrawn upon completion of the refinancing:

• Guaranteed senior secured term loan due 2019 at B1 (LGD 4).

RATINGS RATIONALE

“Bass Pro's financial policy is aggressive, and the company is once again increasing leverage to fund a distribution to its shareholders,” said Moody's analyst, Mike Zuccaro. “Lease-adjusted leverage will rise to over 6.0 times. However, the company has historically demonstrated the ability to profitably grow revenue and meaningfully reduce leverage. The affirmation reflects our expectation that this will continue to be the case, with leverage declining below 5.0 times within the next 18 months.” Zuccaro also noted that the transaction will improve the company's liquidity by repaying outstanding balances under its revolver, extending the maturity of the term loan to 2020 from 2019 and re-setting covenant levels with ample cushion.

Bass Pro's Ba3 rating reflects the company's well recognized brand name in the outdoor recreational products market, the relatively stable overall demand characteristics of this market, very broad product offering, and demonstrated ability to profitably grow its asset base. Bass Pro's revenue, EBITDA, and EBITDA margins have grown steadily over the past few years a result of positive same store sales, modest store expansion, and successful shift in sales towards higher margin proprietary products. The company also benefited from a lower cost structure in its marine business.

Key credit concerns include Bass Pro's relatively moderate size in terms of both number of stores and annual revenue, along with the company's meaningful participation in the boat industry, which has highly cyclical demand and accounts for nearly 20 percent of Bass Pro's consolidated revenue.

The stable rating outlook recognizes Bass Pro's plans to meaningfully grow its store base over the intermediate term, and assumes the company will effectively manage growth while reducing leverage to below 5.0 times in the next 18 months while maintaining good liquidity.

Ratings could be upgraded if Bass Pro achieves expected returns on growth with consistent positive free cash flow, and demonstrates the ability and willingness to achieve and maintain debt/EBITDA at or below 4.0 times at all times.

Difficulty executing growth plans could lead to downward pressure on the rating. A ratings downgrade could occur if operating performance were to materially deteriorate or if financial policies became more aggressive, leading to debt/EBITDA remaining above 5.0 times on a sustained basis.

Moody's full statement is available here.