Top US credit agency lowers Pure Fishing debt rating
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One of America’s ‘big three’ credit rating agencies has lowered its debt rating of Pure Fishing in light of the weak economic and retail outlook in 2020.
New York agency, Standard & Poors (S&P), has adjusted the multi-brand company’s rating down from B- to CCC+ because it believes the difficult trading environment may cause the company’s lease-adjusted debt to EBITDA to be above 10x before improving in 2021.
The rating agency’s recovery rating on the secured debt remains a ‘3’ but its rounded estimate of recovery has been lowered to 50% from 65%.
S&P said in a statement, “The downgrade of Pure Fishing to ‘CCC+’ reflects our expectation that leverage could be very high at about 10x through 2021 and that the company will likely generate negative operating cash flow in 2020.
“Our base case assumption incorporates a revenue decline in the company’s typically strong second quarter of 2020 in the mid-20% area, followed by flat year-over-year revenue in the third and fourth quarters of 2020 compared with 2019.
“We believe that, in line with many other manufacturers and companies affected by the COVID-19 pandemic, Pure Fishing has reduced its growth capital expenditure (CAPEX), furloughed and laid off employees, and materially reduced its cost structure in order to reduce the impact of lower revenue on EBITDA generation.
“Depending upon the success of the company’s existing cost improvement plan, we believe the EBITDA margin might deteriorate modestly in 2020, with a moderate improvement in 2021.”
S&P added that although PF does not expect a significant increase in bad debt expense this year, it has also granted payment extensions to some customers. Its retailer collections are weakened in the remainder of 2020 by an anticipated steep recession, which could potentially stress liquidity if write-offs become material.
The agency anticipates that retail closures and supply chain disruptions as a result of the pandemic will cause significant uncertainty and put stress on the company’s revenues and cash flow. And while sales of the its products have a track record of resilience during economic downturns, a steep recession and a difficult operating environment for retailers would leave the company with little room for missteps.
S&P Global Ratings is an American credit rating agency and a division of S&P Global that publishes financial research and analysis on stocks, bonds and commodities.