Moody’s Investors Service changed Boardriders Inc.’s outlook to negative from stable. At the same time, Moody’s affirmed Boardriders’ ratings, including the Caa1 corporate family rating, Caa1-PD probability of default rating, and Caa1 senior secured term loan rating.

The outlook change to negative reflects the significant deterioration in earnings and cash flow resulting from the unprecedented disruptions caused by the Coronavirus (COVID-19), which led to temporary store closures worldwide and declines in discretionary consumer spending. While supported by around $100 balance sheet cash and $15 million of excess revolver availability as of May 20, 2020, liquidity is weak due to Moody’s expectation for negative free cash flow and financial covenant pressures over the very near term. Cushion under Boardriders’ net leverage covenant was already very tight at the end of January 2020. The affirmation of the Caa1 reflects Moody’s belief that Boardriders has the ongoing support of its sponsor, Oaktree Capital Management, L.P., and that it has been in active discussions with lenders concerning covenant levels and potential incremental liquidity needs.

Moody’s took the following rating actions:

Affirmations

  • Probability of Default Rating, Affirmed Caa1-PD
  • Corporate Family Rating, Affirmed Caa1
  • Senior Secured Bank Credit Facility, Affirmed Caa1 (LGD3)

Outlook Actions

  • Outlook, Changed To Negative From Stable

Rating Rationale
Moody’s wrote, “The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. We regard 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 Boardriders of the deterioration in credit quality it has triggered, given its exposure to temporary store closures and discretionary consumer spending, which has left it vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

“Boardriders’ Caa1 rating is constrained by Moody’s expectation for deteriorating operating performance and credit metrics over the very near term as a result of the unprecedented disruptions caused by the Coronavirus (COVID-19), which led to temporary store closures worldwide and declines in discretionary consumer spending. While supported by balance sheet cash and modest excess revolver availability, liquidity is weak due to Moody’s expectation for negative free cash flow and financial covenant pressures over the very near term, which was already under pressure due to ongoing synergy-related cash outlays related to the 2018 acquisition of Billabong, and planned increased growth-related investments. While acquisition synergies have been significant, the costs to obtain these savings were high. Positive consideration is given to the strategic benefits of the Billabong acquisition, which combined the two premier companies in the global action sports apparel industry with complementary business philosophies, product offerings and geographic footprints. With a portfolio of well-known brand names, the combined company holds a solid market position in a highly fragmented global industry.”

Factors That Could Lead To An Upgrade Or Downgrade Of The Ratings
Ratings could be downgraded if liquidity erodes through greater than expected cash flow burn, covenant violations, or if its probability of default otherwise increases.

A rating upgrade would require a return to revenue and earnings growth, with adequate liquidity including ample covenant cushion and positive free cash flow. Metrics include Moody’s EBITA/Interest maintained over 1.25x.

Boardriders, Inc. designs and distributes branded apparel, footwear, accessories, and related products under six primary brands including Quiksilver, Billabong, ROXY, DC Shoes, RVCA and Element. The company is majority-owned by funds managed by Oaktree Capital Management, L.P.

Photo courtesy Boardriders