S&P Assigns 'BB-' Rating to Winnebago Industries (WGO); Outlook Positive

October 19, 2016 3:43 PM EDT

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S&P Global Ratings said it assigned its 'BB-' corporate credit rating to Winnebago Industries Inc. (NYSE: WGO). The rating outlook is positive.

In addition, we assigned a 'BB-' issue-level rating and '3' recovery rating to the company's proposed $300 million senior secured first-lien term loan due 2023. The '3' recovery rating indicates our expectation for meaningful (50% to 70%; upper half of range) recovery for lenders in the event of a payment default.

The company will use the proceeds from the proposed credit facilities, along with common stock and cash from the balance sheet, to fund the acquisition of Grand Design, which is expected to close in the first quarter of fiscal 2017 ending November 2016.

"The rating on Winnebago primarily reflects our anticipation for high profit volatility over the economic cycle, limited revenue diversification, a relatively low EBITDA margin, and small scale compared to other rated leisure companies," said S&P Global Ratings credit analyst Daniel Pianki.

Partly offsetting these risk factors are a relatively moderate level of leverage, an iconic brand, and a low fixed cost base compared to other leisure goods manufacturers.

The positive outlook reflects our expectation for good operating performance at Winnebago and continued rapid growth at Grand Design, allowing the company to reduce its leverage over the next year using free cash flow for debt repayment.

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