Moody’s Investors Service assigned a B2 rating to Academy Ltd.’s proposed term loan due 2027.
The company’s existing ratings are unchanged, including the B1 corporate family rating (CFR), B1-PD probability of default rating (PDR) and B2 ratings on the senior secured term loan and notes. The speculative-grade liquidity rating remains SGL-1. The ratings outlook remains positive.
Proceeds from the new $300 million term loan and $100 million of balance sheet cash will be used to refinance the existing $399 million term loan while decreasing pricing relative to the existing facility. The new credit facility is expected to have substantially the same terms as the existing one. The ratings on Academy’s existing term loan will be withdrawn upon its repayment in full and the closing of the transaction.
Moody’s views the transaction as credit positive because it lowers funded debt and interest expense.
Moody’s said, “Academy’s B1 CFR reflects the competitive nature of sporting goods retail, including the increased focus of major apparel and footwear brands on direct-to-consumer distribution and the shift to online shopping. In addition, sporting goods demand can fluctuate, in part driven by demand cycles in the firearms and ammunition category. Moody’s expects revenue and earnings to decline in the second half of 2021 and into 2022 following strong growth in 2020, as consumers return to more normalized spending habits. This could drive an increase in leverage to 3.1-3.5x compared to 2.6x as of January 30, 2021 (Pro-forma). In addition, as a retailer, Academy needs to make ongoing investments in its brand and infrastructure, as well as in social and environmental drivers including responsible sourcing, product and supply sustainability, privacy and data protection.
“At the same time, Academy’s rating positively considers the company’s very good liquidity, scale and solid market position in its regions. The turnaround strategy put in place by the current management team in 2018, including initiatives in merchandising, private label credit card and omnichannel investment, has been driving improved operating performance since the second half of 2019 including 7 quarters of positive comparable sales growth. In addition, Academy’s value price points and diversified product assortment tend to result in resilient performance during economic downturns. The rating also considers governance factors, including the expectation for balanced financial strategies. Moody’s believes re-leveraging transactions are unlikely following the company’s 2020 public equity offering, the reduction in KKR’s ownership stake to 31.7 percent following the secondary offerings, and roughly 50 percent debt reduction from pre-IPO levels.
“The positive outlook reflects Academy’s outperformance relative to expectations since the IPO, and the potential for the company to maintain solid credit metrics as demand in the sporting goods category moderates.”
Photo courtesy Academy
