The Sports Authority has secured a new, seven-year, $350 million term loan due 2017. Proceeds from the new loan, led by Bank of America and JPMorgan Chase, will replace the retailer’s existing $275 million senior secured term loan due 2013 and buy back a portion of its subordinated debt, according to Moody's Investors Service.
The rating agency last week assigned a B3 rating to the proposed loan, revised the company's ratings outlook to 'stable' from 'negative,' and reaffirmed TSA's B3 Corporate Family rating.
According to Moody's, the proposed term loan will be secured by a first lien on TSA's property, plant and equipment and intangible assets, and a second lien on the collateral securing its $725 million asset based revolving credit facility.
Regarding the outlook upgrade, Moody's said the change reflects “TSA's improved profitability, strengthened liquidity profile through maturity extension, and leading competitive position within the sporting goods retail sector. The change also recognizes the company's weak, but improving credit metrics. Finally, the stable outlook incorporates a tolerance for nominally negative free cash flow, given the company's existing plans for revamped store growth.”
Moody's added that its B3 rating reflects TSA's credit metrics, highlighted by adjusted leverage above 7.0x (pro forma for refinancing).
“Moody's expects continued improvement in TSA's profitability in the near term to offset the high leverage, driven by a modest recovery in store performance and enhanced operating discipline,” the ratings agency said. “Liquidity should remain adequate as the company faces no near term maturities and maintains ample cushion under its revolving credit facility.”
Moody's said TSA is in the early stages of rebounding from the impact of recessionary economic conditions, and therefore, a ratings upgrade is less likely in the near term.
