Moody’s Investors Service placed all ratings on Bass Pro Group on review for downgrade, including its Ba3 Corporate Family Rating, Ba3-PD Probability of Default Rating and the B1 rating on its Senior Secured Term Loan due 2020.
The review for downgrade follows Bass Pro’s announcement that it has entered into a definitive agreement to acquire Cabela’s Inc. for $65.50 per share in cash, or about $4.5 billion, about a 16 times multiple of Cabela’s EBITDA, excluding Financial Services. The share price being paid represents about a 19 percent premium over Cabela’s closing share price on Friday, September 30, 2016.
Immediately prior to closing, Capital One, National Association, a wholly-owned national banking subsidiary of Capital One Financial Corporation, will acquire certain assets and assume certain liabilities of Cabela’s World’s Foremost Bank One Financial Corporation. Upon closing, Bass Pro will commence a multi-year partnership whereby Capital One will originate and service the Cabela’s cobranded credit card.
The aggregate value of these transactions is approximately $5.5 billion. The transaction is expected to close during the first half of calendar 2017, and is subject to approval by Cabela’s shareholders and regulatory approval.
The following ratings are placed on review for downgrade:
- Corporate Family Rating at Ba3
- Probability of Default Rating at Ba3-PD
- Senior Secured Term Loan due 2020 at B1 (LGD4)
Ratings Rationale
Moody’s said Bass Pro’s proposed acquisition of Cabela’s will combine the premier brands in the outdoor sporting goods industry with complementary business philosophies, product offerings and geographic footprints. However, the potential deal brings with it significant integration risk, and the company’s final capital structure is unclear given that the expected proceeds from Capital One’s purchase of certain financial services assets and assumed liabilities have not been disclosed. Bass Pro has obtained about $2.4 billion of committed preferred equity financing to fund a portion of the transaction. However, the review for downgrade is based upon Moody’s expectation for a sizable increase in debt levels to fund the remaining portion not covered by the finance asset sales.
Moody’s said its rating review will focus on the level of integration risk associated with the sizable acquisition, size and timing of any potential synergies, amount of debt needed and expected time to deleverage once the deal closes, as well as the impact this transaction will have on the company’s ongoing financial policy decisions including, but not limited to, shareholder distributions and further acquisitions. Moody’s notes that the review could extend longer than 90 days in the event of an FTC review of the transaction.
