S&P Global Ratings reduced the debt ratings on youth licensed sports apparel maker Outerstuff LLC as a missed payment on its term loan is expected to constitute a default.
S&P said Outerstuff entered into an amendment and extension on its term loan credit agreement that extended the maturity of $108 million of its term loan balance to Dec. 31, 2027. However, it will not pay $14 million, the non-extended portion of the term loan due on Dec. 29, 2023.
As a result of the anticipated payment default on the non-extended portion of the term loan at its December 29, 2023 maturity, S&P lowered its issuer credit rating on Outerstuff to ‘SD’ (selective default) from ‘CCC-‘. The ratings agency also lowered its issue-level rating on the company’s $155 million term loan due Dec. 29, 2023, to ‘D’ from ‘CCC-‘.
Ratings affirmed included Outerstuff’s ‘B-‘ issue-level rating on the asset-based lending facility because there are no cross defaults with the term loan facility. The company also extended the maturity of this facility to September 2027.
S&P said in its analysis, “The downgrade reflects the expected missed payment of the $14 million non-extended term loan due Dec. 29, 2023, where a default on the obligation is a virtual certainty. The company executed an amendment and extension of its term loan on Nov. 15, 2023. As part of the transaction, the company’s founder and CEO Sol Werdiger contributed $30 million of common equity, which was used to pay down a portion of the term loan balance. After the paydown, the new term loan outstanding is $122 million, of which $108 million was extended to Dec. 31, 2027, but $14 million was not extended due to end-of-life fund limitations and matures on Dec. 29, 2023. The amendment includes a forbearance that forbears lenders from exercising rights and remedies with regard to the upcoming Dec. 29, 2023, maturity until the earlier of a termination event or Dec. 31, 2027. In our view, this represents a default on the term loan because of the expected missed payment because the company did not meet its contractual obligation to pay principal and interest on the non-extended portion at maturity.
“Subsequently, we expect to raise our issuer credit rating on Outerstuff to ‘CCC+’. Our expectation of the ‘CCC+’ rating reflects our belief that Outerstuff’s capital structure remains unsustainable given its weak cash flow generation. However, we forecast modest improvements next year and some liquidity relief with the maturity extensions.”
