Moody’s Investors Service downgraded Remington Outdoor Company Inc.’s Corporate Family Rating to Caa1 from B2 due to its weak operating performance and credit metrics, including high leverage. The downgrade also reflects Moody’s expectation that Remington’s operating performance will not meaningfully improve in the next year or two.

The rating outlook is stable.

“Despite our expectation of a modest increase in revenue and earnings next year, we think debt/EBITDA will remain over 10 times and EBIT/interest will stay below one times,” said Kevin Cassidy, senior credit officer at Moody’s Investors Service. Revenue dropped almost 25 percent in Q3 2015 and is down around 20 percent in the first nine months of 2015.

“We think revenue will continue falling in Q4 2015 versus Q4 2014 and will remain below $850 million for the next couple of years,” said Cassidy.

Ratings downgraded:

  • Corporate Family Rating to Caa1 from B2;
  • Probability of Default Rating to Caa1-PD from B2-PD;
  • $580 million secured term loan due April 2019 to B3 (LGD 3) from B2 (LGD 3);
  • $250 million secured notes due May 2020 to Caa2 (LGD 5) from Caa1 (LGD 5);

Rating affirmed:

  • Speculative grade liquidity rating at SGL 2

Ratings Rationale

Remington Outdoors’ Caa1 Corporate Family Rating reflects its weak credit metrics, modest size with revenue around $800 million, volatility in demand, narrow product focus in firearms, ammunition and related areas and exposure to raw material commodity prices (i.e., copper and lead). Moody’s expects debt/EBITDA to remain over 15 times for the next couple of quarters, but approach 10 times by the end of 2016. While Moody’s anticipates a sizeable improvement in EBIT in 2016, it will still remain well below adjusted interest expense of about $60 million. Moody’s expects revenue to remain below $900 million for the next few years. Ratings benefit from a good liquidity profile over the next 12-18 months, strong brand recognition of operating companies such as Remington Arms and Bushmaster, an expanding base of firearm enthusiasts, solid market share and a demonstrated commitment by its financial sponsors.

The stable outlook reflects Moody’s expectation that Remington’s operating performance will not significantly further deteriorate in the short-term.

If revenue and earnings don’t stabilize next year, ratings could be downgraded. Ratings could also be downgraded if liquidity materially declines or if leverage doesn’t begin to recede. Key credit metrics that could prompt a downgrade are: debt/EBITDA remaining well above 10 times beyond 2016 or EBIT/interest staying below 1 time for a prolonged period.

The company needs to materially improve its operating performance before an upgrade is considered. Key credit metrics that could prompt an upgrade over the longer term are: debt/EBITDA approaching 8 times and EBIT/interest moving towards 1 time. Subscribers can find further details in the Remington Outdoors Credit Opinion published on Moodys.com.

Remington Outdoors’ brands include Remington, Marlin, Bushmaster, and DPMS/Panther Arms, among others. Revenue for the twelve months ended September 30, 2015, approximated $815 million. The company is controlled by Cerberus Capital Management.