Moody’s Investors Service downgraded Remington Outdoor Company Inc.’s Corporate Family Rating to Caa2 from Caa1 and its Probability of Default Rating to Caa2-PD from Caa1-PD. The rating action is due to Moody’s concern with Remington’s weak operating performance, and the view that the company’s capital structure is becoming unsustainable.

The SGL2 Speculative Grade Liquidity Rating was withdrawn. The rating outlook is stable.

“Despite our expectation of a modest increase in revenue and earnings next year, we think debt/EBITDA will remain around 8 times,” said Kevin Cassidy, senior credit officer at Moody’s Investors Service.

“We feel that Remington’s capital structure is becoming unsustainable due to the uncertainty over its ability to refinance debt that comes due in less than two years,” noted Cassidy. Revenue dropped almost 30 percent in Q1 2017 and EBITDA dropped 70 percent. “We think revenue and earnings will continue falling in Q2 2017 versus Q2 2016,” said Cassidy. There is continuing uncertainty about the timing of a recovery in the gun market.

Ratings Downgraded

  • Corporate Family Rating to Caa2 from Caa1
  • Probability of Default Rating to Caa2-PD from Caa1-PD
  • $580 million secured term loan due April 2019 to Caa1 (LGD 3) from B3 (LGD 3)
  • $250 million secured notes due May 2020 to Caa3 (LGD 5) from Caa2 (LGD 5)

Rating Withdrawn

  • Speculative grade liquidity rating at SGL 2

Ratings Rationale
Remington’s Caa2 Corporate Family Rating reflects its significant demand volatility, weak credit metrics with debt/EBITDA over 9 times and modest size, with revenue around $800 million. Concerns over the sustainability of Remington’s capital structure given its high refinancing risk is factored into the rating. Remington’s narrow product focus in firearms, ammunition and related areas, and exposure to raw material commodity prices (i.e. copper and lead) are also reflected in the rating. Moody’s expects earnings to remain under pressure and leverage to remain high. Ratings are constrained by the longer-term threat of increased gun regulations (beyond three years). Ratings benefit from strong brand recognition with such lines as Remington Arms and Bushmaster. Also beneficial is an expanding base of firearm enthusiasts and solid market share.

The stable outlook reflects Moody’s expectation that Remington’s credit profile will remain very weak in the year ahead.

Moody’s indicated the ratings could be downgraded if the company does not refinance its debt obligations well before maturity or if the company pursues an exchange offer that Moody’s considers a distressed exchange, and hence a default. If revenue and earnings don’t stabilize within the relatively near term, ratings could also be downgraded.

The company needs to materially improve its operating performance and address its upcoming debt maturities before Moody’s would consider an upgrade.

Photo courtesy Remington