Following a similar move by Moody’s, S&P Global Ratings upgraded the debt ratings of Topgolf Callaway Brands Corp. after it sold a 60 percent stake in its Topgolf business to Leonard Green & Partners (LGP), with proceeds used to pay down debt.

S&P raised its issuer credit rating on Topgolf Callaway by two notches to ‘BB-‘ from ‘B’. At the same time, it raised its issue-level rating on the company’s senior secured term loan by three notches to ‘BB’ from ‘B’. S&P also revised the recovery rating to ‘2’ from ‘3’ due to the debt paydown. The ‘2’ recovery rating indicates an expectation for substantial (70 percent to 90 percent; rounded estimate: 70 percent) recovery in a hypothetical default.

The positive outlook reflects S&P’s view that Callaway’s ratings could be raised again over the next 12 months if the company maintains S&P Global Ratings-adjusted leverage below 2x.

S&P said in its analysis, “The stand-alone Callaway business will operate with much lower S&P Global Ratings–adjusted leverage. The company deleveraged significantly by prepaying approximately $1.0 billion on its $1.25 billion term loan facility. We also expect Callaway to deploy remaining balance sheet cash to fully redeem its $258 million of convertible notes at maturity in May 2026, further reducing debt and fixed financial obligations. As a result, we forecast pro forma S&P Global Ratings–adjusted leverage will decline to just below 2x by year-end 2026 compared to 5.3x for year-end 2025.

“Our leverage assessment incorporates a significant reduction in finance and operating lease liabilities associated with separating the Topgolf business, given the limited lease exposure of the company’s remaining core operations. In addition, all deemed landlord financing obligations and venue-level financing liabilities related to Topgolf are expected to transfer with that business.

“The sale of Topgolf reduces the scale, profitability level, and diversification of stand-alone Callaway. We forecast total consolidated sales of approximately $2.1 billion in 2026, compared with approximately $3.9 billion in 2025 for the combined entity, reflecting the divestitures of both Jack Wolfskin and Topgolf. Therefore, we revised our assessment of the company’s business risk profile to weak from fair.

“Despite the reduction in absolute scale, we expect the company’s golf equipment and apparel segments to demonstrate stable demand trends, supporting low-single-digit percent year-over-year revenue growth for stand-alone Callaway. We anticipate elevated tariff-related input costs will partially pressure profitability, limiting margin expansion. As a result, we forecast S&P Global Ratings–adjusted EBITDA margins of approximately 12.0 percent in 2026 and 12.2 percent in 2027, corresponding to adjusted EBITDA of roughly $255 million and $265 million, respectively.

“Callaway has repositioned its operating model as a pure-play golf equipment and apparel company focused on its core product offerings. Callaway has simplified its business model following the divestiture of its Topgolf entertainment segment. By exiting a capital-intensive, venue-based operating model, the company is concentrating on its traditional strengths in golf equipment and active lifestyle products, which should simplify operations and improve visibility into earnings and cash flow. The remaining portfolio consists of Callaway Golf, Odyssey, TravisMathew, and OGIO, representing established brands with market recognition and pricing power across golf clubs, balls, apparel, and accessories.

“In our view, this streamlined structure enhances management’s ability to prioritize product innovation, control costs, and allocate capital more efficiently. It also reduces exposure to discretionary entertainment spending and execution risk associated with physical venue expansion. Following the transaction close, Topgolf Callaway Brands Corp. expects to change its name to Callaway Golf Co. within 30 days.

“We expect Callaway will generate consistent free operating cash flow (FOCF) despite the sale of Topgolf. As of the end of the third quarter (ended September 30, 2025), the company had roughly $866 million of cash on hand and $427 million available across its U.S and international asset-based lending (ABL) facilities. We project the stand-alone Callaway will generate reported FOCF of around $150 million annually after capital expenditure (capex) of about $40 million — a steep reduction in capital spending compared with $300 million for the former combined entity. We expect most of its Capex will fund technology investments, improve existing stores and support expansion. The company does not face any near-term maturities, with its ABL facilities maturing in 2028 and its term loan facility maturing in 2030.

“The positive outlook reflects our view that we could raise our ratings on Callaway over the next 12 months if we expect S&P Global Ratings-adjusted leverage sustained below 2x.”

Image courtesy Topgolf