Monday, April 17, 2023

Pure Fishing at ‘elevated risk’ of debt default, says ratings agency

 Pure Fishing at ‘elevated risk of default’ after 14.6% drop in sales

By Anthony Hawkswell

Originally published in Angling  International 

The financial rating of Pure Fishing has been downgraded as sales at the world’s largest supplier of fishing tackle declined by nearly 15% last year.

Moody’s Investment Services lowered Pure Fishing’s Corporate Family Rating – long-term ratings that reflect the likelihood of a default on a corporate family’s debt – and Probability of Default Rating both to Caa2 (very high risk).

“The rating downgrade and negative outlook reflects Pure Fishing’s unsustainable capital structure and the elevated risk of default over the next 12 to 18 months given its very high financial leverage,” said Oliver Alcantara, AVP-Analyst at Moody’s. “We expect that demand and industry headwinds will persist in 2023 and the company has limited financial flexibility to absorb prolonged revenue pressures given its constrained liquidity.

Pure Fishing reported ‘meaningfully lower operating results’ in fiscal 2022, with year-on-year revenue declining 14.6% as persistently high inflation and weakening macro-economic conditions pressurised consumer demand for its product.

In addition, said Moody’s, the elevated level of inventory has negatively impacted reorders.

The company’s debt balance sheet doubled over the past two years due, in part, to having to fund the acquisitions of Plano Synergy in April 2021 and Svendsen Sport in February this year, added the report. Since 2021, ongoing cash flow deficits also contributed to higher debt.

Moody’s noted that in late fiscal 2022 and early 2023, Pure Fishing completed a series of transactions to improve its liquidity, which included entering into a $60 million property loan due October 2024, secured by the company’s North American real estate and provided by its financial sponsors, Sycamore Partners. The company also obtained a $50 million promissory note due until February 2027 to fund working capital and for general corporate purposes. In addition, the company extended the maturity of its ABL revolving facility to March 2026.

Pure Fishing announced changes to its executive management team this month, with its CEO, Harlan Kent, stepping down but remaining on the Board and Dave Allen replacing him. The company has also implemented productivity improvements that include labour cost reduction and production efficiency improvements.

“The debt capital injection provides near-term financial flexibility to fund operations and working capital seasonality, particularly during the first quarter of 2023, ahead of the North American fishing season,” added Moody’s.

“The company anticipates cash flow generation will improve in the middle of this year as orders stabilise and excess inventory declines. Still, Pure Fishing will need to sustainably and meaningfully improve its profitability and cash flows to sustain its higher debt service requirements and fund business seasonality past 2023.”

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