West Marine agreed to restructure roughly $800 million of the company’s debt in out of court proceedings with the assistance of L Catterton, its private-equity owner, sources told the Wall Street Journal.
The Fort Lauderdale, FL-based boating and fishing suppliers retailer, with 230 stores in 38 states, will receive $125 million of new funds from L Catterton, which acquired West Marine in 2021, and a group of existing lenders. Sources said. L Catterton would provide about two-thirds of the new money and retain business control. Approximately $660 million of West Marine’s debt will convert into equity warrants as part of the deal.
French-luxury conglomerate LVMH backs L Catterton.
West Marine completed a recapitalization in late March with $150 million of additional capital. At that time, Chuck Rubin, CEO of West Marine, said “The successful completion of our recapitalization agreement provides us with the financial strength to continue enhancing our omni-channel experience, investing in our talented team, and delivering the highest quality products to our customers. I, along with the entire management team, look forward to executing on the significant opportunities ahead that we expect will deliver long-term sustainable growth for West Marine.”
However, a source told the WSJ that West Marine continues to struggle with supply chain challenges, extreme weather events due to climate change and reduced demand compared with pandemic peaks.
On March 24, S&P Global Ratings upgraded the debt ratings of Rising Tide Holdings Inc., doing business as West Marine, after it completed the exchange of its first- and second-lien term loan facilities, modifying coupons to include a payment-in-kind (PIK) component to interest. S&P said its outlook remains negative.
S&P said, “The negative outlook reflects the risk that Rising Tide could face a conventional default in the coming 12 months absent significant traction in operating performance amid a slowing economy, operational uncertainty, and recent high management turnover.”
On May 13, Moody’s Investors Service assigned first-time ratings to Rising Tide Holdings, Inc.’s B3 corporate family rating (CFR) and a B3-PD probability of default rating. In addition, Moody’s assigned a B2 rating to Rising Tide’s proposed $385 million first lien term loan and a Caa2 rating to the proposed $120 million second lien term loan. Moody’s said its outlook is stable.
Moody’s wrote, “The stable outlook reflects the expectation that the recent margin enhancement will be sustained and deleveraging will occur through earnings growth while maintaining adequate liquidity. The stable outlook also reflects Moody’s expectations of no material dividend distributions.
“Rising Tide has adequate liquidity reflecting Moody’s expectation of low cash balances and positive free cash flow generation. The company will have access to an undrawn $125 million asset-based lending revolving credit facility. Moody’s expects the revolver to be used for seasonal working capital needs as the company builds working capital and the fourth and first quarters in preparation of the spring and summer seasons.
“As proposed, the new first and second lien credit facilities are expected to provide covenant flexibility that, if utilized, could negatively impact creditors.”
Photo courtesy West Marine