Outerstuff LLC was upgraded today by S&P Global Ratings to CCC and a negative outlook, from Selective Default, or SD, after term loan lenders agreed, in October, to stretch their maturity out to December 2023, and the company paid their back-due interest and principal. The company's senior secured term loan was raised as well, to CCC, from SD.
Ratings had downgraded Outerstuff in May 2020 to SD after it missed an interest and principal payment due March 31 on its term loan. The company entered into a forbearance agreement in April with its term loan and asset-based loan facility lenders that extended their payment deadline to, at first, May 31. As part of the October agreement with lenders, Outerstuff paid principal and interest payments missed in March, June and September.
According to Ratings, Outerstuff also renegotiated terms of its licenses with "most major sports leagues," significantly reducing minimum guaranteed royalties. In spite of the expected earnings improvement from the renegotiated contracts, Ratings believes Outerstuff's liquidity will be "less than adequate" over the coming year. It projects debt-to-EBITDA will be around 8x in 2021, while expecting the company to run free cash flow negative as it rebuilds inventory.
Ratings believes the company could default in the next 12 months, "especially if the new controlling owner, CEO Sol Werdiger, attempts to retire outstanding debt at a significant discount." Ratings also noted the challenges of the pandemic, including the uncertainty of when fans will return to sporting events. But Ratings added that a return to "a more normal sports environment" in 2022 could allow the company to take advantage of its pandemic-driven cost-cutting measures and "generate materially positive free cash flow" by then.
Outerstuff designs, makes and markets licensed children’s sports apparel for major sports leagues in North America, including the NFL, MLB, NBA, NHL and MLS. The company also produces items for the U.S. Olympic Committee and more than 200 colleges and universities, and Adidas youth apparel.