Moody’s Investors Service downgraded Pure Fishing’s Corporate Family Rating (CFR) to B3 from B2 and revised the rating outlook to negative from stable.

The Probability of Default Rating was downgraded to B3-PD from B2-PD and the rating on the secured first lien term loan was downgraded to B2 from B1. These actions follow weaker sales, earnings, and cash flow than Moody’s had expected and higher than expected transition costs the company experienced in its separation from Newell Brands. The actions also reflect Moody’s expectation that neither revenue nor earnings will meaningfully improve until 2021.

Revenue was down about 5 percent to roughly $500 million in the LTM period ended September 2019 versus 2018 and EBITDA margins were around 170 basis points lower in the same period. Some of this shortfall is due to poor weather in some key fishing markets during early 2019, as well as reduced sales to one of Pure Fishing’s largest customer as that retailer reduced its inventory levels. Debt to EBITDA is very high at around 8 times. Moody’s projects debt to EBITDA to approach 7.5 times in 2020 and 6.5 times in 2021 through a combination of debt repayments with free cash flow, cash on hand, and EBITDA growth.

The negative outlook reflects the uncertainty around the timing of when the company’s operating performance will improve and when debt to EBITDA will decrease and be sustained below 7 times.

Issuer: SP PF Buyer LLC

Ratings downgraded:

  • Corporate Family Rating to B3 from B2;
  • Probability of Default Rating to B3-PD from B2-PD;
  • Senior Secured 1st lien term loan maturing 2025 to B2 (LGD 3) from B1 (LGD 3)

The rating outlook is revised to negative from stable

RATINGS RATIONALE

The B3 CFR reflects Pure Fishing’s very high financial leverage with debt to EBITDA at around 8 times, moderate scale with revenue about $500 million, and product concentration within fishing related products. The rating also reflects the risks associated with being owned by a private equity firm. Pure Fishing’s solid market presence, product diversification within fishing gear and strong brand recognition among fishing enthusiasts supports the rating,

The B2 rating on the first lien term loan is one notch higher than the B3 CFR. This reflects the support provided by the unrated $180 million second lien term loan. Both the first lien term loan and the second lien term loan have upstream guarantees from operating subsidiaries.

Moody’s views Pure Fishing as being moderately exposed to environmental, social and governance risks. From a governance standpoint, Pure Fishing has historically operated with high leverage and with the risks associated with being owned by a private equity firm. The company is close to completing its separation from Newell Brands’ financial processes and systems.

Ratings could be downgraded if the company’s operating performance or liquidity deteriorates for any reason, or if debt to EBITDA remains above 7 times well into 2021.

Ratings could be upgraded if the company can meaningfully increase its revenue and sustain debt to EBITDA around 6 times.

Headquartered in Columbia, SC, Pure Fishing primarily designs, manufactures and sells fishing equipment, including rods, reels, lures, artificial bait, and related fishing tackle, across the globe. Revenues approximate $500 million.

In December 2018, Newell Brands completed the sale of Pure Fishing to Sycamore Partners. Pure Fishing’s brands include Abu Garcia, All Star, Berkley, Chub, Fenwick, Greys, Hardy, Hodgman, Johnson, JRC, Mitchell, Penn, Pflueger, Sebile, Shakespeare, SpiderWire, Stren and Ugly Stik.