Moody's Lowers Outlook on Performance Sports Group (PSG) to Negative Following Recent Poor Operating Performance

Moody's Investors Service ("Moody's") revised Performance Sports Group Ltd's (NYSE: PSG) rating outlook to negative from stable due to its poor operating performance highlighted by its recent earnings announcement and weak credit metrics. The speculative grade liquidity rating was downgraded to SGL 3 from SGL 2. All other ratings, including the B3 Corporate Family Rating, were affirmed.

"PSG's revised earning guidance resulted in a departure from our previous expectations," said Kevin Cassidy, Senior Credit Officer at Moody's Investors Service. Moody's had expected leverage to be temporarily high due to foreign exchange head winds. "The negative outlook reflects our concerns that debt/EBITDA will remain above 8 times for a prolonged period," noted Cassidy. The speculative grade liquidity rating was downgraded due to Moody's expectation of very modest free cash flow generation over the next 12 to 18 months.

Rating downgraded:

Speculative Grade Liquidity Rating to SGL 3 from SGL 2;

Ratings affirmed:

Corporate Family Rating at B3;

Probability of Default Rating at B3-PD;

$330 million Term Loan B rating at Caa1 (LGD 4);

PSG's B3 Corporate Family Rating reflects its poor operating performance and weak credit metrics with debt/EBITDA over 10 times. The rating also reflects PSG's modest size with pro forma revenue around $600 million and narrow product focus in sports equipment and apparel. The rating benefits from PSG's strong brand awareness among action sport enthusiasts and solid geographical diversification. PSG has grown significantly over the last few years through acquisition, but Moody's expect PSG to limit further acquisitions until credit metrics improve.

The negative outlook reflects Moody's view that PSG's credit metrics will remain weak for the next 12-18 months during a time when the company will likely look to address the expiration of its ABL revolving credit facility (expires in April 2019).

There is limited upward near-term rating pressure given the company's poor operating performance and weak credit metrics. Stability in demand for baseball/softball bats is needed for an upgrade to be considered. Key credit metrics necessary for an upgrade are sustaining debt/EBITDA around 6 times.

Failure to steadily reduce leverage could lead to a downgrade. A deterioration in liquidity could also lead to a downgrade. Key credit metrics that could prompt a downgrade would be failure to steadily reduce debt/EBITDA to below 8 times in the next couple quarters.

Subscribers can find further details in the PSG Credit Opinion published on Moodys.com.

The principal methodology used in these ratings was Consumer Durables Industry published in September 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology

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