Remington Outdoor, the second-largest U.S. gunmaker, has had a “rapid” and “sharp” deterioration in sales and a similar drop in profit since January, and faces “continued softness in consumer demand for firearms,” credit analysts at Standard & Poor’s Global Ratings said in a report.
S&P as a result has cut the company’s corporate credit rating — already at a junk-bond-level CCC+ — two full notches, to CCC-, which is likely to make the company’s high-yield debt less attractive to investors and lenders, and force Remington to pay more in interest. The company could face a change in control, bankruptcy, or default on its debt by next year.
A backlog of unsold firearms will force Remington to operate at a loss and “pressure the company’s sales and profitability at least through early 2018, resulting in insufficient cash flow for debt service and fixed charges,” unless Remington gives up cash to pay for ongoing operations, S&P said.
S&P expects “a heightened risk of a restructuring” of Remington’s $575 million senior secured loan and asset-based lending facility, which it is supposed to pay back in 2019.
If Remington defaults on its payments, based on the company’s current value, S&P expects that first-lien creditors may receive around 35 cents back from every dollar they have lent or invested. Lower-rated creditors would get back less, or nothing.
But default is not yet “a virtual certainty,” the report said.