Standard & Poor’s (S&P) lowered the debt ratings of Outerstuff LLC due to continued weak operating performance and liquidity pressure.

Rating change highlights:

  • Outerstuff LLC recently reported third-quarter results significantly below S&P’s expectations. Through the first three quarters of the year, net sales are down 11 percent and EBITDA is negative.
  • S&P lowered the issuer credit rating on Outerstuff to ‘CCC’ from ‘CCC+’, reflecting its belief that a specific default scenario such as a missed interest payment, bankruptcy filing, or debt restructuring could occur in the next 12 months without unforeseen positive developments. S&P is concurrently lowering all issue-level ratings on Outerstuff’s debt by one notch.
  • The negative outlook reflects that S&P could lower the rating if it believes a default is inevitable within six months.

S&P said, “Outerstuff LLC recently reported third-quarter results significantly below our expectations. Through the first three quarters of the year, net sales are down 11 percent and EBITDA is negative.

“We are lowering the issuer credit rating on Outerstuff to ‘CCC’ from ‘CCC+’, reflecting our belief that a specific default scenario such as a missed interest payment, bankruptcy filing, or debt restructuring could occur in the next 12 months without unforeseen positive developments. We are concurrently lowering all issue-level ratings on Outerstuff’s debt by one notch.
The negative outlook reflects that we could lower the rating if we believe a default is inevitable within six months.

“Outerstuff’s weak operating performance continued through the third quarter, and we now believe a default could occur over the next 12 months.  Through the first three quarters of 2019, Outerstuff’s revenue fell about 11 percent from the same period last year, and its last-12-months EBITDA was negative mainly because of continued weak sales of National Football League (NFL) products and the slow ramp up of the Fanatics deal signed in late 2018. In addition, weak Super Bowl-related sales, management’s decision to accommodate requests by certain retailers to take back inventory in the first quarter, and soft Umbro sales after a good year for Umbro in 2018 also continued to weigh on the company’s performance.

“The negative outlook reflects that we could lower the rating if we believe a default is inevitable within the subsequent six months.

“We could lower the rating if operating performance remains weak in the first half of 2020 and we believe the company could miss an interest payment, or if a restructuring or filing for bankruptcy protection appears inevitable over the subsequent six months.

“We could take a positive rating action if Outerstuff significantly exceeds our projections and we no longer believe a near-term default is likely. This would most likely result from successfully renegotiating its NFL contract to drastically reduce the guaranteed minimum licensing fee. Under this scenario, we would expect the company to significantly improve cash flows such that free cash flow is positive and EBITDA coverage of interest approaches 1.5x.”