Moody’s Investors Service confirmed all ratings of Camping World, including the B1 Corporate Family rating, and assigned a negative outlook. Concurrently, Moody’s also assigned a Speculative Grade Liquidity Rating at SGL-3.
“Today’s rating action considers the negative impact on Camping World’s credit profile from a confluence of events during late-2018 and Q1 2019, including the ramp-up and integration of the Gander Mountain locations acquired out of bankruptcy and rolled-out during 2018, as well as the unexpected and precipitous decline in RV sales in Q4, representing the worst quarter for the industry in several years,” stated Moody’s Vice President Charlie O’Shea.
“At present, both leverage and interest coverage are outside of Moody’s downgrade triggers, with sequential improvement beginning in Q2 necessary so that tangible progress towards levels more appropriate for the rating are achieved,” continued O’Shea. “A key rating factor is the maintenance throughout this period of solid liquidity and a conservative financial policy, with de minimus shareholder returns.”
Assignments:
..Issuer: CWGS Enterprises, LLC
…. Speculative Grade Liquidity Rating, Assigned SGL-3
Outlook Actions:
..Issuer: CWGS Enterprises, LLC
….Outlook, Changed To Negative From Rating Under Review
Confirmations:
..Issuer: CWGS Enterprises, LLC
…. Probability of Default Rating, Confirmed at B1-PD
…. Corporate Family Rating, Confirmed at B1
….Senior Secured Bank Credit Facility, Confirmed at B1 (LGD4)
Ratings Rationale
Moody’s said Camping World’s credit profile (B1 negative) considers its weak quantitative credit profile due to the negative impact of the costs involved in the acquisition and integration of Gander Mountain locations, which were purchased out of bankruptcy, as well as late-2018 softening in the RV market. As of March 2019, leverage increased to 5.7 times due to the negative EBITDA impact of approximately $100 million in Gander-related costs incurred during the 2018, as well as softness in the RV segment, and EBIT to interest deteriorated to 2.3 times. Moody’s said a key rating factor is the immediate sequential and consistent improvement from Q1 levels such that metrics return the quantitative profile to a more representative B1 profile. Camping World’s credit profile is supported by its leading market position within the recreational vehicle segment, with a business model that provides multiple sources of revenue, with retail sales, membership sales, and parts and accessories through its dealership and retail networks, as well as the risks inherent with its acquisition-based growth strategy. A key rating constraint remains the highly-discretionary nature of recreational vehicles, which represent a significant portion of the company’s revenue and profit mix. The negative outlook reflects Moody’s concern that credit metrics may not rebound to roughly FYE 2017 levels within the next several quarters.
Moody’s added that ratings could be downgraded if, due to either weakness in operating performance or financial policy decisions such as any but de minimus share repurchases, credit metrics fail to exhibit sequential improvement such that debt/EBITDA does not approach around 4.5 times and EBITA/interest does not approach 3 times within the next 12-18 months, or if liquidity were to weaken. Given the negative outlook, an upgrade in the near future is unlikely. Over time, an upgrade could occur if operating performance significantly reversed its present negative trends such that debt/EBITDA was sustained below 4 times, and EBIT/interest was sustained above 3.5 times, and good liquidity was maintained.
