S&P Global Ratings affirmed its ‘CCC+’ issue-level rating on Pure Fishing’s first-lien senior secured term loan due 2025 following debt issuance tied to the acquisition of Plano Synergy Holdings.
S&P’s ‘3’ recovery rating on the loan is unchanged, indicating its expectation for meaningful recovery (50 percent to 70 percent; rounded estimate: 55 percent) in the event of a payment default.
S&P said the incremental first-lien debt in the company’s capital structure has reduced the recovery prospects for its first-lien lenders, though the decline was not significant enough to lead it to revise its recovery rating or lower its issue-level rating because the incremental value from the acquisition will partially offset the rise in its debt.
In April 2021, Pure Fishing issued approximately $205 million of incremental first-lien term loans and $50 million of incremental, unrated, second-lien term loans, to fund its acquisition of Plano Synergy Holdings Inc., a manufacturer of outdoor recreation equipment with brands specializing in fishing, hunting, and archery. Shortly thereafter, Pure Fishing sold Plano’s hunting and archery brands for approximately $75 million but retained the Plano and Frabill fishing equipment brands, as well as Caboodles and Creative Options, which specialize in cosmetics and crafts storage. S&P said it believes the acquisition will modestly increase Pure Fishing’s already very high anticipated leverage because its estimates that it paid approximately 10x Plano’s 2021 EBITDA net of the cash it received from the sale of the hunting and archery brands.
S&P wrote in a press release, “In our updated base-case forecast, we expect the company’s revenue to increase by the mid-single-digit percent area in 2021 pro forma for the acquisition as the company continues to experience high demand for its fishing products while social distancing measures remain in place. We assume Pure Fishing’s revenue could decline by as much as 10 percent in 2022 due to a pull-back in the demand for its fishing products, which could begin as early as the second half of this year once the U.S. achieves widespread immunization and alternative forms of entertainment become available to consumers. We expect the company’s S&P Global Ratings-adjusted EBITDA margin to improve to the 14 percent to 15 percent range on an increase in its gross margin and the realization of a modest amount of cost synergies from the Plano acquisition. Incorporating our assumptions and our expectation that the company will use the proceeds from the sale of Plano’s hunting and archery brands to repay debt, we believe its leverage will remain elevated with S&P Global Ratings-adjusted debt to EBITDA in the mid-7x range in 2021 and possibly above 8x in 2022.
“Our ‘CCC+’ issuer credit rating on Pure Fishing reflects our forecast for very high leverage through 2022 and our belief that its capital structure may become unsustainable if there is unexpected volatility in the demand for fishing equipment or it experiences an inadvertent operating misstep over the next two years. Incorporating the company’s $42 million of cash as of December 31, 2020, and our base-case assumptions for operating performance and good availability under its asset-backed lending (ABL) facility, we believe the company will have adequate liquidity over at least the next 12 months. Therefore, our outlook is stable because we believe that a near-term default is unlikely. However, given our forecast for Pure Fishing’s leverage to remain very high through 2022, we could revise our outlook to negative or lower our ratings over the next several months if we believe the assumed pullback in fishing equipment demand will cause its revenue, EBITDA, and cash flow to materially underperform our base-case assumptions and lead it to make significant draws on its ABL facility. Alternatively, we could lower our ratings if we believe a default or restructuring is likely over the next 12 months.”
Photo courtesy Pure Fishing
