Moody’s changed its debt rating of Bass Pro Group, L.L.C. to negative from stable. Concurrently, Moody’s affirmed the company’s Ba3 corporate family rating (CFR), Ba3-PD probability of default rating (PDR), and B1 term loan rating.
The change in outlook to negative from stable reflects the risk that Bass Pro’s credit metrics may weaken on a sustained basis as a result of recessionary conditions and declines in discretionary consumer spending. The outlook also reflects the risk of weakened liquidity if the company closes its stores for an extended period. Bass Pro has not announced chainwide store closures due to the coronavirus outbreak.
The rating affirmation reflects Bass Pro’s good liquidity and established market position in the sports and outdoors category.
Moody’s said, “The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The retail sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Bass Pro Group’s credit profile, including its exposure to US discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Bass Pro Group remains vulnerable to the outbreak continuing to spread. Moody’s regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today’s action reflects the impact on Bass Pro Group of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.”
Moody’s took the following rating actions for Bass Pro Group, L.L.C:
- Corporate family rating affirmed Ba3
- Probability of default rating affirmed Ba3-PD
- $4.22 billion ($4.15 billion outstanding) senior secured term loan B, affirmed B1 (LGD4)
- Outlook revised to negative from stable
Moody’s said, “Bass Pro’s Ba3 CFR is supported by its well-recognized brand names, broad product offerings and good market position in the outdoor recreational products retail sector. Bass Pro’s margins benefit from its sizable loyalty card income stream and significant private label penetration. The company’s business model as a destination experiential retailer sets it apart from other mass-market competitors that do not carry the breadth of products nor the level of in-store customer service that is the foundation underpinning its loyal customer base. The rating also benefits from the company’s good liquidity over the next 12-18 months. Moody’s expects that Bass Pro can continue to generate positive annual free cash flow before member distributions, assuming a significant reduction in CapEx that mitigates earnings declines, as well as have ample availability under the $1.275 billion asset-backed revolver and a lack of near-term maturities.
“Bass Pro’s credit profile is constrained by its high leverage and relatively low-interest coverage. As of December 28, 2019, Moody’s-adjusted debt/EBITDA was an estimated 5.4 times, and EBIT/interest expense was 1.6 times. Moody’s expects that credit metrics will weaken over the next 12-18 months, but improve in late 2021. The company’s boat and hospitality businesses, as well as its loyalty card income, are vulnerable to declines in consumer spending and recessionary conditions. However, Bass Pro’s loyal customer base, diverse product assortment and value price points in the retail business mitigate earnings pressure in economic downturns. The rating is also constrained by the company’s aggressive financial strategies, including its use of cash flow and incremental debt for member distributions and redemption of preferred equity issued by Bass Pro’s parent.
“The ratings could be downgraded if operating performance materially deteriorates, liquidity weakens or if Moody’s-adjusted debt/EBITDA is sustained above 5.5 times.
“The ratings could be upgraded if the company demonstrates the ability and willingness to reduce debt/EBITDA (on a Moody’s adjusted basis) to around 4.5 times on a sustained basis while maintaining good liquidity.”
Photo courtesy Bass Pro