Moody’s Investors Service downgraded Under Armour Inc.’s senior unsecured rating to Ba1 from Baa3. The rating was also placed under review for further downgrade. The downgrade reflects the brand’s ongoing challenges reinvigorating growth in its core North American market and its potential 2020 restructuring plan.

At the same time, Moody’s assigned a Ba1 Corporate Family Rating, Ba1-PD Probability of Default Rating and a Speculative Grade Liquidity rating of SGL-1. Long-term ratings were placed on review for downgrade.

• Senior Unsecured Notes, Downgraded to Ba1 (LGD4) from Baa3; placed under review for further downgrade

• Corporate Family Rating, Assigned Ba1; placed under review for downgrade
• Probability of Default Rating, Assigned Ba1-PD; placed under review for downgrade
• Speculative Grade Liquidity Rating, Assigned SGL-1

Outlook Actions
• Outlook, Changed To Rating Under Review From Negative

Ratings Rationale
“The downgrade and review reflect Under Armour’s ongoing challenges reinvigorating growth in its core North American market,” stated Moody’s Vice President, Mike Zuccaro. “While Under Armour has taken significant action over the past two years to improve its overall profit margins, balance sheet and cash flow, accelerated sales declines in 2020 will lead to further de-leveraging of costs and when coupled with the need to continue investing in growth and marketing, the company’s profitability and credit metrics will materially deteriorate in 2020.”

Moody’s noted that Under Armour is assessing a potential 2020 restructuring plan that could include approximately $325 million to $425 million of pre-tax restructuring-related charges. If adopted, the plan could drive approximately $30 million to $50 million in pre-tax benefits in 2020.

Moody’s’ review will focus on the scope of the potential 2020 restructuring plan and its overall impact on the company in terms of expected savings, timing and cost to achieve the savings, including impact on cash and cash flow. Moody’s will also focus on the time it will take to turn around its North American operations, the ability to maintain solid growth in international markets and yield significant improvement from what will be a very low EBIT margin level in 2020 relative to other rated apparel peers.

Photo courtesy Under Armour