S&P Global Ratings lowered its issuer credit rating on U.S. action sports apparel company Boardriders Inc. to ‘SD’ (selective default) from ‘CCC+’ and its issue-level rating on the company’s term loan to ‘D’ from ‘CCC+’.
The downgrade reflects S&P’s view that the recent transaction completed by Boardriders to provide needed liquidity and fund an operational turnaround is tantamount to a default because the company is distressed and the original lenders are now in a disadvantaged position.
Boardriders Inc. recently issued $155 million of new money debt, including:
— $65 million contributed by Boardriders’ financial sponsor owner, Oaktree, consisting of a $45 million initial term loan and a $20 million delayed draw term loan (currently undrawn);
— $45 million contributed by other existing lenders; and
— $45 million via a facility backed by a European government.
Boardriders is using the proceeds from the new debt to repay asset-based loan revolver borrowings, pay transaction fees, and put cash on the balance sheet to help fund operations. It also issued $492 million of preferred stock as additional compensation to lenders who contributed new money.
The company allowed existing lenders who contributed new money to roll up their original term loan positions into new tranches of term loan debt that rank pari passu with the new money facilities. These new facilities all rank senior to the remaining balance of the existing term loan, which is held by lenders who did not participate in the transaction.
“We view this transaction as tantamount to a default on the existing term loan because the company’s operations are distressed and its lenders who did not participate in the transaction are now in a disadvantaged collateral position relative to the new debt. This indicates to us that they will receive less than what they were originally promised, without receiving adequate offsetting compensation,” S&P said.
“We expect to reevaluate our ratings on Boardriders and the company’s debt in the near term. We will likely raise our issuer credit rating on Boardriders to the ‘CCC’ category, given its still-unsustainable debt leverage, high debt service commitments, and our view that the company will likely have difficulty generating consistently positive free cash flow before its next significant debt maturity in 2023,” the rating agency said.