Wedbush Downgrades Performance Sports Group (PSG) to Neutral
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Wedbush downgraded Performance Sports Group (NYSE: PSG) from Outperform to Neutral with a price target of $2.50 (from $5.00). Yesterday the company said it would delay its 10-K filing, which may lead to default.
"As ugly as the last year has been, until now, from a fundamental perspective, we had confidence that the company would be able to avoid default on its debts. However, with today’s news, we find that such a default may happen regardless of the company’s fundamentals, and that such an event is largely out of management’s control at this point. With this in mind, we have no choice but to throw in the towel and downgrade PSG shares until some level of visibility on the company’s solvency is gained," said analyst James Hardiman.
"Monday, PSG announced there would be an unanticipated delay in the filing of the company’s annual 10-K filing, as the company’s regular auditors have brought in independent council to verify PSG’s financial results. Based on PSG’s ABL credit facility agreement, the company has two weeks from now to produce the audited 10-K to avoid “technical default” of its $200M revolving credit facility, and 45 days to avoid 'full default', noted the analyst.
Hardiman added, "Management must now deal with jittery suppliers, customers, and partners fearing a bankruptcy, as well as a cross-default provision which could also potentially put the company in default of its $450M term loan. Hence, although the delay of the 10-K may not be fundamental to PSG’s business, it could trigger a more fundamental impact if suppliers and customers begin to balk at contractual arrangements. This may prove to be the nail in PSG’s coffin even if the company is able to produce a 10-K within the next 45 days."
Shares of Performance Sports Group closed at $1.85 yesterday.
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