Moody’s Investors Service downgraded Boardriders, Inc.’s debt ratings due to continued cash outflows in part driven by investments to support its business transformation, weak credit metrics and near-term debt maturities.
The downgrades include corporate family rating (CFR) to Caa2 from Caa1, probability of default rating (PDR) to Caa2-PD from Caa1-PD, and senior secured super-priority credit facility rating to Caa1 from B3. Concurrently, Moody’s affirmed the company’s Caa3 senior secured bank credit facility rating. The outlook was changed to stable from negative.
Boardriders’ six primary brands include Quiksilver, Billabong, ROXY, DC Shoes, RVCA, and Element.
Moody’s said that as of January 31, 2022, Moody’s-adjusted debt/EBITDA was just under 8x and EBIT/interest expense was 0.4x. Despite the recent ABL extension and upsize, Moody’s views overall liquidity as adequate over the next 12 months. While revenue trends are positive, with sales modestly exceeding pre-pandemic levels in Q1 FY 2022 across the company’s regions, inflationary and supply chain pressures could impede the company’s ability to reduce leverage, stated Moody’s. In addition, a potential loss of the company’s business in Russia, although it represents a small part of total revenue and earnings, will be a headwind.
Moody’s wrote, “Boardriders’ Caa2 rating is constrained by its weak credit metrics and near-term debt maturities. Since the acquisition of Billabong in 2018, the company has generally underperformed its targets and generated meaningful negative free cash flow driven by restructuring and working capital investments. Liquidity is adequate outside of the company’s debt maturities, reflecting Moody’s expectation that near-term cash flow needs will be supported by balance sheet cash and availability under the asset-based revolver, foreign lines of credit, and delayed draw term loan. In addition, macroeconomic headwinds pose a risk to Boardriders’ earnings recovery and ability to reduce leverage.
“At the same time, the rating reflects the company’s portfolio of well-known brand names, geographic and channel diversification, and solid market position in a highly fragmented global industry. In addition, Moody’s expects credit metrics to improve to 6.2x debt/EBITDA and 0.7x EBIT/interest expense in 2022, driven by earnings growth, as near-term inflationary and foreign exchange pressures are mitigated by recovering consumer demand, price increases and foreign exchange hedges. The rating is also supported by the significant amount of convertible and other debt held by the company’s financial sponsor, which creates optionality in addressing the capital structure.
“The stable outlook reflects the positive trends in the company’s operating performance and Moody’s expectations for adequate liquidity outside of the debt maturities.”
Photo courtesy Boardriders
