Moody’s Investors Service downgraded the debt ratings as SP PF Buyer LLC, which does business as Pure Fishing. The rating agency said the downgrade reflects Pure Fishing’s “unsustainable capital structure with excessive financial leverage with debt/EBITDA in excess of 9.0x and negative free cash flow generation for the fiscal year-end December 31, 2019, and Moody’s expectations that the deteriorating operating environment stemming from the coronavirus outbreak will also pressure the company’s earnings and cash flows in fiscal 2020.”
Moodys said Pure Fishing’s liquidity is weak and it is dependent on the revolving credit facility for fixed charges. Pure Fishing’s revenue declined about 6 percent and EBITDA margins contracted around 130 basis points in fiscal 2019, largely driven by poor weather conditions in some key markets in early 2019, and reduced sales to some of the company’s largest customers as retailers reduced inventory levels. Given the anticipated decline in the company’s earnings, Moody’s projects debt/EBITDA financial leverage will increase to over 13.0x and for free cash flow to continue to be pressured in fiscal 2020.
The stable outlook reflects the company’s lack of near term maturities until its revolver facility is due in 2024, other than small loan amortization, and the company has some time to execute a turnaround. However, a material improvement in credit metrics and free cash flow over the next 24 months is needed ahead of the 2024 maturity.
- Probability of Default Rating, Downgraded to Caa2-PD from B3-PD
- Corporate Family Rating, Downgraded to Caa2 from B3
- Senior Secured Bank Credit Facility, Downgraded to Caa2 (LGD3) from B2 (LGD3)
Outlook, Changed To Stable From Negative
Moody’s said, “Pure Fishing’s Caa2 CFR reflects its unsustainable capital structure with very high financial leverage which Moody’s projects will increase to over 13.0x in fiscal 2020, and its negative free cash flow generation. The company’s scale is moderate with annual revenues of around $500 million, and Moody’s expects the deteriorating operating environment related to the coronavirus outbreak will continue to pressure the company’s top line, earnings and cash flow in fiscal 2020. The company’s products are concentrated within the mature fishing product category. The company’s weak liquidity reflects Moody’s expectations for negative free cash flow over the next 12 months, and increased reliance on its $125 million revolving facilities due in 2024. Governance factors relate to the company’s ownership by private equity sponsor and the inherent risk of aggressive financial policies. The rating also reflects the company’s strong market presence in the fishing products industry, its product diversification within fishing gear, and its portfolio of long-standing well-recognized brands among fishing enthusiasts.
“The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The durables sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer and business demand and sentiment. More specifically, the weaknesses in Pure Fishing’s credit profile, including its exposure to weak economic conditions and high unemployment, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the outbreak continuing to spread. Moody’s regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today’s action reflects the impact on Pure Fishing of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.”
Moody’s said the ratings could be upgraded if the company’s operating results and free cash flow generation improve driven by sustained organic revenue growth and EBITDA margin expansion if debt/EBITDA is sustained below 9.0x and the company maintains at least adequate liquidity. The ratings could be downgraded if the company’s operating results deteriorate beyond Moody’s expectations, or if the probability of a debt restructuring or event of default increases for any reason.
Headquartered in Columbia, SC Pure Fishing primarily designs, manufactures and sells fishing equipment, including rods, reels, lures, artificial bait, and related fishing tackle, across the globe. Revenues are approximately $500 million.
Photo courtesy Pure Fishing