- S&P estimates leverage will rise to 10x from 9x after deal closes
- Selling baseball, softball brands to Bauer for $330 mln
- Refinancing debt with new term loans; asset-based credit facility
S&P analysts Stephanie Harter and Rick Joy estimated Easton-Bell’s leverage level would climb to nearly 10x EBITDA after the deal closes, up from 9x for the 12 months ended Sept 28, which in turn was loftier than the 7x of the prior year, according to the March 19 downgrade. Easton-Bell announced the deal on Feb 13, with a projected closing date 30 to 60 days after that.
The ratings agency said it expects the company’s adjusted EBITDA to drop by about 25 percent after the sale of its baseball and softball business. On a side note, Easton-Bell said it’s working toward an agreement with a third party for the sale of its Easton Hockey unit.
The company faces challenges stemming from the discretionary nature of its recreational products, limited geographic diversity, and exposure to product liability as well as challenges from rivals Schutt Sports, and Rawlings Sporting Goods, a unit of Jarden Corp, S&P said. The firm declined comment.
On the plus side, Easton-Bell holds solid market share in several product categories, including Bell and Giro cycling helmets and Riddell football helmets and shoulder pads, S&P said. Its presence in power sports helmets also is growing.
S&P cut its corporate credit rating on Easton-Bell to B-minus from B, with a stable outlook, on the expectation that Easton-Bell will stabilize its operating performance in 2014 and maintain adequate liquidity. A rating in the Bs means S&P considers a company “vulnerable” to a downturn but with adequate liquidity for the time being.
Easton-Bell, which will rename itself BRG Sports after the deal closes, is floating a $205 million first-lien term loan due 2021, and it also plans to issue a $105 million second-lien loan due 2022. It’s also seeking a $150 million asset-based lending facility, which will be undrawn at close. At the same time, Easton-Bell plans to retire $145 million in holding company notes and to refinance $350 million of senior secured notes.
The unit sale to Bauer Performance Sports comes after the company reportedly put its football helmet unit, Riddell, up for sale last year for an expected price of up to $900 million. No deal was announced.
Easton-Bell Sports is listed on the Fenway Partners website’s current investment page, which also includes Fastfrate, Preferred Freezer Services, Refrigerated Holdings, RoadLink and SunTek. Late last year, Jostens Inc announced it would buy Fenway Partners portfolio firm American Achievement Group Holdings Co. Jostens is a unit of Visant Corp, a Kohlberg Kravis Roberts & Co portfolio firm. The most recent Fenway Partners buyout fund remains the vintage 2006 Fenway Partners Capital III, which raised $700 million.