S&P cuts Varsity Brands loan to B

S&P said it affirmed its B corporate credit rating on Varsity Brands Holding Co. Inc.

The outlook is stable.

The agency also affirmed its BB- rating on the company's upsized $150 million ABL revolver due 2019 with a recovery rating of 1, reflecting an expectation for very high (90%-100%) recovery in the event of a payment default. In addition, it affirmed the CCC+ rating on the upsized $390 million second-lien term loan with a recovery rating of 6, reflecting an expectation for negligible (0%-10%) recovery in the event of a payment default.

At the same time, S&P lowered its rating on the company's upsized $1 billion first-lien term loan ($985 million outstanding) to B from B+ and revised the recovery rating to 3, reflecting an expectation for meaningful (in the higher half of the 50%-70% range) recovery in the event of a payment default, from 2.

The agency estimates pro forma debt outstanding as of Sept. 30 is about $1.4 billion.

"The corporate credit rating affirmation reflects our expectation that notwithstanding the increased debt burden from the proposed debt-financed distribution, Varsity Brands will continue to generate satisfactory free cash flow and strengthen profitability such that credit measures will strengthen over the next year," S&P credit analyst Katherine Heng said in a news release.

The ratings reflect Varsity Brands’ private equity ownership and high debt burden, including adjusted debt to EBITDA in the mid-6 times area and adjusted EBITDA to interest expense around 2.5 times, the agency added.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.