Moody’s Investors Service assigned a B3 rating to Oak Parent, Inc.’s extended senior secured term loan due April 2025. All other ratings remain unchanged, including the company’s B3 corporate family rating (CFR). The outlook remains stable.
The amendment and maturity extension of the $347 million term loan to April 2025 from October 2023 is a credit positive, as it addresses Augusta Sportwear’s near-term debt maturity while only modestly increasing the credit spread. Pro-forma for the transaction and including the current SOFR rate, Moody’s-adjusted EBITA/interest expense will decline to an estimated 1.6x from 2.5x as of July 2, 2022. The company’s $40 million revolving credit facility was also extended to April 2025 from October 2023. Pro-forma for the transaction, revolver availability will be impacted by a substantial draw to pay for amendment fees and expenses, and balance sheet cash will also be very modest. However, Moody’s expects overall liquidity to be adequate over the next 12-18 months, including modestly positive free cash flow and a lack of near-term debt maturities.
Moody’s wrote in its analysis, “Augusta’s B3 CFR reflects its narrow business focus and limited revenue scale in the global apparel industry. The company competes in a highly fragmented category with both retail brands and other sports uniform distributors. The ratings also incorporate governance risks, including private equity ownership and financial and M&A strategies that led to high leverage prior to the coronavirus pandemic. While revenue and earnings for the last twelve months ended July 2, 2022 exceeded 2019 levels, leverage is still high, at 5.9x Moody’s-adjusted debt/EBITDA pro-forma for the transaction. As an apparel company, Augusta Sportswear is also subject to social and environmental factors, including product and supply chain sustainability.
“The rating is supported by the company’s defensible market position in the wholesale team uniform, school-related sportswear and dancewear markets, which drove strong operating margins and cash flow generation prior to the pandemic. The ratings also consider the limited level of fashion risk in the company’s products, product breadth and demand stability from the ultimate end users, all of which drive resilient operating performance.
“The stable outlook reflects Moody’s expectations for continued deleveraging and positive free cash flow.”
The company’s brands include Augusta Sportswear, High Five, Holloway, Russell Athletic and Pacific Headwear. It also owns the CCM hockey uniforms license.
