Moody’s Investors Service has downgraded Gibson Brands, Inc.’s Corporate Family Rating (CFR) to Caa2 from Caa1 due to increasing concerns about the company’s liquidity position. The rating outlook is negative.
The downgrade reflects Moody’s concerns about the company’s ability to meet all of its financial obligations in 2016 and 2017 that include over $80 million due to a consumer electronics supplier and $45 million in near-term outstanding indebtedness, if the ABL revolving credit facility is not refinanced. The expiration date of the ABL was recently accelerated to May 2017 from January 2018 because the company was in violation of a covenant. “However, we expect that the company will be able to refinance the ABL based on the strength of the underlying assets,” says Kevin Cassidy, Senior Credit Officer at Moody’s Investors Service.
“We expect Gibson’s operating performance to improve this year, but remain below our original expectations,” adds Cassidy “We think the chances of some type of debt restructuring will increase as the company approaches the August 2018 maturity of its $375 million notes”.
The ratings could be lowered if the company does not successfully address its upcoming debt maturities that include:
a) $32 million of financial obligations to a consumer electronics supplier by December 2016, of which $25 million currently remain outstanding;
b) Refinancing of a $75 million ABL facility (of which $45 million is currently outstanding) maturing in May 2017;
c) Over $50 million of additional financial obligations to a consumer electronics supplier by December 2017
While unlikely in the near term given the negative outlook, over the longer term an upgrade could be considered if Gibson successfully addresses its upcoming debt maturities and improves and sustains its operating performance.
Headquartered in Nashville, TN, Gibson Brands designs, manufactures, markets, and globally distributes the instrument brands; Gibson, Philips, Epiphone, Kramer, Baldwin, Onkyo, KRK, and Stanton. Revenues were approximately $1.6 billion for the 12 months ended June 30, 2016.