Moody’s Investors Service affirmed all ratings for Vista Outdoor Inc., including its B1 Corporate Family Rating (CFR), B1-PD Probability of Default Rating and B3 senior unsecured rating. The affirmation follows the company refinancing its unrated credit facility, including a senior secured revolving credit facility and senior secured term loans. The speculative grade liquidity rating was upgraded to SGL-2 from SGL-3. The rating outlook remains negative.
On November 19, 2018, Vista entered into $600 million of new, unrated senior secured credit facilities. These are comprised of a $450 million ABL revolver, a $109 million first lien term loan and a $40 million second lien term loan. Proceeds from the new credit facilities were used to repay the company’s outstanding debt.
The upgrade of the speculative grade liquidity rating reflects the loosening of financial covenants that had become a concern in the former credit facility. The new credit facility does not contain a leverage covenant, but there is a 1.15 times fixed charge covenant starting in the quarter ending March 31, 2019.
The negative outlook reflects the continuing risks associated with Vista’s transformation plan to sell select businesses and the uncertainty over when gun and ammunition demand trends will stabilize.
Ratings affirmed:
Corporate Family Rating at B1;
Probability of Default Rating at B1-PD;
Senior unsecured notes at B3 (LGD5);
Rating upgraded:
Speculative Grade Liquidity Rating to SGL-2 from SGL-3.
The outlook on all ratings is negative.
RATINGS RATIONALE
Vista’s ratings reflect its high debt/EBITDA at over 5.5 times, weak operating performance and the uncertainty surrounding the gun industry. Moody’s expects Vista’s debt/EBITDA to fall below 5 times in the next 6 to 12 months through earnings growth and debt repayments with free cash flow. Vista’s credit metrics need to be stronger than other similarly-rated consumer durable companies. The ratings also reflect Vista’s strong competitive position with leading brands in several niche categories and favorable demand trends in the U.S. for outdoor activities.
Once the company completes its transformation plan and there is more clarity around demand trends in the gun industry, the ratings could be upgraded if operating performance improves. Debt/EBITDA also needs to be sustained around 3.5 times for an upgrade to be considered.
Ratings could be downgraded if Vista’s operating performance does not stabilize or if there are significant adverse regulations in the gun industry. Ratings could also be downgraded if debt/EBITDA is sustained above 5 times.
Vista Outdoor, based in Anoka, MN, is a manufacturer and marketer of outdoor sports, recreation products and ammunition. The company produces a broad product line for the biking, winter sports, hunting, shooting sports, wildlife watching, archery, and golf markets. Major brands include Bushnell, Blackhawk!, CamelBak, Savage Arms, Federal, and Camp Chef. Revenue is approximately $2.1 billion.
