Moody's Investors Service ("Moody's") downgraded Academy, Ltd.'s ("Academy") Corporate Family Rating ("CFR") to Caa1 from B3 and Probability of Default Rating ("PDR") to Caa1-PD from B3-PD. Concurrently, Moody's downgraded the company's senior secured term loan rating to Caa2 from Caa1. The ratings outlook was changed to negative from stable.
The downgrades reflect Moody's expectations for continued weak earnings and credit metrics in the near term, driven by a challenging operating environment, the transition of the company's merchandising assortment, margin pressure from the mix shift to e-commerce and investments needed to improve the store and digital experience. In addition, the downgrades acknowledge the risk that Academy could buy back a meaningful portion of its term loan at a significant discount, which could be deemed a distressed exchange, a default under Moody's definition.
The negative outlook reflects the risk that Academy's earnings performance and liquidity including free cash flow and availability under its revolving credit facility could be weaker than expected, potentially increasing the likelihood of default.
Moody's took the following rating actions for Academy, Ltd.:
Corporate Family Rating, downgraded to Caa1 from B3
Probability of Default Rating, downgraded to Caa1-PD from B3-PD
$1.825 billion ($1.635 billion outstanding) Senior Secured Term Loan B due 2022, downgraded to Caa2 (LGD4) from Caa1 (LGD4)
Outlook, changed to Negative from Stable