Moody’s Ratings upgraded Topgolf Callaway Brands Corp.’s (Topgolf Callaway) debt ratings to reflect a larger decline in leverage after the company repaid substantially more debt than previously planned from the proceeds of the Topgolf sale.
The ratings upgraded include Topgolf Callaway’s Corporate Family Rating (CFR) to Ba3 from B1, Probability of Default Rating to Ba3-PD from B1-PD and the rating on the senior secured term loan B to Ba3 from B1. Topgolf Callaway’s SGL-1 speculative grade liquidity rating is unchanged. The outlook was changed from stable to positive.
Moody’s noted that Topgolf Callaway closed the sale of a 60 percent stake in Topgolf for $1.1 billion to Leonard Green on January 1, 2026. Topgolf Callaway repaid $1 billion of debt outstanding under the term loan, up from the $500 million paydown the company had previously committed to lenders when it originally announced the sale.
Moody’s said it also expects the company to use cash to repay the roughly $258 million of debt outstanding on the 2.75 percent convertible senior notes that mature in May 2026, and for the golf business to continue generating steady, modestly improving earnings. The rating agency noted that the majority of leases at the previously combined Topgolf Callaway entity are staying with the Topgolf business and the reduction in interest expense at Callaway, including a portion from leases, will decline to roughly $20-$30 million from well above $200 million and support good free cash flow generation.
Moody’s said it anticipates debt-to-EBITDA will decline to around 2.0x in 2026 (pro forma for standalone Callaway), which is considerably lower than the mid-4.0x it expected when Moody’s confirmed Topgolf Callaway’s B1 CFR on November 20, 2025. Moody’s said, “The meaningful reduction in leverage, more consistent free cash flow generation, and reduction in investment funding that we expect Callaway to provide to Topgolf more than offsets the decline in business diversity. The use of proceeds from asset sales to meaningfully reduce debt are positive governance developments that are a key factor in the rating action. This results in an improvement in the financial strategy and risk management score to 3 from 4, the management track record score to 3 from 4, the governance issuer profile score to G-3 from G-4 and the credit impact score to CIS-3 from CIS-4.”
Moody’s noted that the company intends to change its name to Callaway Golf Company NYSE:CALY) from Topgolf Callaway Brands Corp. (NYSE:MODG) later this month.
Moody’s added, “The outlook is positive because the company could be positioned for an upgrade if it sustains leverage at the low pro forma level. The low interest burden and modest debt level provide the company considerable flexibility to navigate changes in consumer demand and discretionary end-markets. However, because the company has not provided an updated long-term leverage target or financial policy, there is some uncertainty about the sustainability of leverage at the current level as it balances shareholder distributions. Callaway’s newly announced $200 million share repurchase program is sufficiently covered by ample cash after the anticipated debt repayment and expected free cash flow of over $100 million.
“Liquidity is very good as indicated by the company’s SGL-1 speculative grade liquidity rating. Cash of around $680 million after the debt repayment on the term loan provides good coverage of the $258 million convertible notes that mature in May 2026. We expect the company to gradually reduce the cash balance through reinvestment in the business and share repurchases, including the newly announced $200 million share repurchase program. We project free cash flow at Callaway will be well over $100 million in 2026. The cash, free cash flow and available borrowing capacity on the undrawn $485 million ABL provides considerable cushion to support operating cash requirements, including seasonal needs.
“The Ba3 rating on the $1.25 billion original principal secured term loan, the same level as the Ba3 CFR, reflects that the term loan is the preponderance of funded debt at Topgolf Callaway. The term loan is secured by a first priority lien on all assets of Topgolf Callaway and guarantors, as well as a second lien on inventory and accounts receivable (ABL priority collateral). The company’s $250 million unsecured convertible notes due May 2026 are not guaranteed and are effectively subordinated to the term loan and ABL revolver. The rating on the term loan could decline if the convertible notes are repaid because the notes currently provide a loss-absorption cushion in the event of a default.”
Image courtesy Callaway Golf Company
