Moody’s maintained its negative outlook about the increasingly diversified Callaway Golf group despite a new move intended to simplify its capital structure by refinancing its debt, following its $1.7 billion acquisition of Topgolf International, the U.S.-based operator of golf venues and entertainment centers, in March 2021. In a previous diversification move into apparel, Callaway had bought Jack Wolfskin at the beginning of 2019 for €418 million, after its takeover of TravisMathew and Ogio in 2017.
In fact, Callaway is planning to issue a new $950 million 7-year term loan B to repay existing debt at Callaway and Topgolf and return about $166 million to its balance sheet. It also plans to put in place a new $500 million asset-backed lending (ABL) facility to replace existing revolving credit facilities at both companies.
Callaway’s new capital structure will result in high financial leverage of close to a ratio of 5.7 times debt to Ebitda. It should begin to moderate below 5.5 times by mid-2023. Moody’s gave a B1 rating to the new debt but expressed continued reservations about the benefits of its diversification into golf entertainment, considering that the Topgolf business is “capital intensive, cyclical, and discretionary.”
The agency said its negative outlook reflects execution risks as Topgolf will likely continue to build new venues. It also “reflects the potential for a pullback in golfing-related activities from elevated levels seen during the pandemic that may subside as participation in a broader array of other leisure activities is restored.”
