Moody’s downgraded its ratings for Amer Sports’ debt to the lowest level possible, issuing a pessimistic short-term outlook for the company, acquired a year ago by Anta Sports Products and other investors. Moody’s expects a 20 percent decline in the group’s revenues this year, noting that its products are subject to highly discretionary consumption and that 80 percent of them are sold through brick-and-mortar stores, most of which are now closed in key markets affected by the coronavirus pandemic.
The ratings, which have been lowered from B1 to B3, concern a €1.7 billion loan and a €315 revolving credit contracted by Amer. Moody’s said that the group may breach its bank covenants due to a possible cash shortfall in the second and third quarters of this year because of the pandemic. It noted that Amer’s brands generate little cash in the seasonally weak first half of the calendar and financial year, evidently pointing to the likes of Atomic and Salomon.
At the seasonally high point of last Dec. 31, Amer had €306 million in cash and could draw €119 million on its revolving credit. But, it was also facing the need to repay €167 million in loans during the first half of this year, without access some of the cash in foreign subsidiaries.
Last month, Amer decided to forego the payment of €11.5 million in dividends to its shareholders to help service its loans, but this will be insufficient, as the company normally has negative cash flow in the second quarter. Moody’s predicts that Amer will exceed the 8.0 net coverage threshold on its senior secured debt by June 30 or Sept. 30.
Of course, it is highly unlikely that the group will run into a default. Anta and other cash-rich members of the consortium that owns Amer will likely inject more equity into the company, but this would further increase Amer’s already high financial leverage.
