Moody’s Ratings reported that it views Vista Outdoor’s new “Strategic Review” as “credit negative” because “continuing explorations of sales of parts or all of the business distract management from reviving core operations.”
The rating agency also sees higher credit risk in any potential sale of its Revelyst outdoor products business.
Moody’s stated, “The prolonged strategic uncertainty at Vista Outdoor since the original spin-off plan was announced in May 2022 and continued delays in choosing between potential sales offers or a spin-off are credit negative because it diverts management focus and company resources away from core business operations.”
As reported, on July 30, Vista adjourned its shareholder vote on the sale of The Kinetic Group, its ammunition business, to the Czechoslovak Group (CSG) to pursue a more extensive review of “strategic alternatives,” including a sale of its Revelyst outdoor products business and selling the company outright to MNC Capital.
Vista’s Board also said it was still exploring the separation of Revelyst from Kinetic through a spin-off that it contemplated initially in May 2022. Vista’s Board continues to recommend Vista stockholders vote in favor of the proposal to adopt the merger agreement with CSG. Moody’s said the announcements do not affect Vista Outdoor’s Ba3 Corporate Family Rating (CFR) or negative outlook.
Moody’s stated, “We expect to withdraw the ratings on Vista Outdoor if The Kinetic Group or all of Vista Outdoor is sold to either CSG or MNC Capital because the rated debt will likely be repaid as part of a change of control transaction. However, a potential spin-off of the outdoor products business with debt remaining at the ammunition entity would be detrimental to creditors because of the loss of EBITDA that would be divested and due to reduced scale and product diversity. The standalone ammunition business is also more sensitive to volatility in non-law-enforcement-related ammunition demand.
“We also see greater risk for financial policies that favor shareholders over lenders following recent pressure from activist investors and the company could consider other leveraging transactions as part of the strategic review. As part of Vista’s original plan to spin-off Outdoor Products in May 2022, the company intended to focus more on shareholder-friendly activities such as dividends and opportunistic share repurchases and increase its long-term total leverage target not to exceed 3.0x, up from the company’s existing and current 1.0x-2.0x net leverage target. Further, Vista has increased the amount of shareholder distributions it is planning as part of a sale to CSG. Given recent shareholder sentiment and management response, we believe that any divestiture is likely to result in greater capital distributions to shareholders and potentially debt issuance than originally anticipated,” concluded Moody’s
Image courtesy Vista
