The annual Black Friday post Thanksgiving sales numbers are in and for most firearms manufacturers that’s a good thing. The Federal Bureau of Investigation is reporting that this years National Instant Criminal Background Check System (NICS) performed just over 203,000 background checks on firearms purchases in a single day. This is the highest number of checks every performed on a single day. No evidence of a “Trump Slump” that manufacturers were talking about earlier in the year, maybe consumers were just waiting on great deals for the holidays. However earlier in the week on November 20th 2017 a report was released from financial giant Standard & Poor’s the company’s bond status was slashed two full ratings from CCC+ down to CCC- . This move essentially relegates Remington stock to a status of what is commonly referred to as “Junk Bond Status”
Downgrades and Debt
As we mentioned in the previous article things at Remington are slipping and it isn’t just Standard & Poor’s that is downgrading the iconic firearms manufacturer. Moody’s another stock ratings think tank and dropped the rating on Remington in July 2017 and launched voiced serious concerns about Remington’s more than $830 Million Dollars worth of loans that are due to be repaid from April 2019 through May 2020. If you think this is all hype read the press releases that are pasted below from Moodys.Com
NOTE: On June 29, 2017, the press release was corrected as follows: In the Ratings Rationale section, the seventh paragraph referencing the Credit Policy page was removed and the following sentence was added to the end of the sixth paragraph: “Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.” Revised release follows.New York, June 28, 2017 — Moody’s Investors Service downgraded Remington Outdoor Company, Inc.’s (“Remington”) Corporate Family Rating to Caa2 from Caa1 and its Probability of Default Rating to Caa2-PD from Caa1-PD. The rating action is due to Moody’s concern with Remington’s weak operating performance, and the view that the company’s capital structure is becoming unsustainable. The SGL2 Speculative Grade Liquidity Rating was withdrawn. The rating outlook is stable.
“Despite our expectation of a modest increase in revenue and earnings next year, we think debt/EBITDA will remain around 8 times,” said Kevin Cassidy, Senior Credit Officer at Moody’s Investors Service. “We feel that Remington’s capital structure is becoming unsustainable due to the uncertainty over its ability to refinance debt that comes due in less than two years,” noted Cassidy. Revenue dropped almost 30% in Q1 2017 and EBITDA dropped 70%. “We think revenue and earnings will continue falling in Q2 2017 versus Q2 2016,” said Cassidy. There is continuing uncertainty about the timing of a recovery in the gun market.
Ratings downgraded:
Corporate Family Rating to Caa2 from Caa1;
Probability of Default Rating to Caa2-PD from Caa1-PD;
$580 million secured term loan due April 2019 to Caa1 (LGD 3) from B3 (LGD 3);
$250 million secured notes due May 2020 to Caa3 (LGD 5) from Caa2 (LGD 5);
Rating withdrawn:
Speculative grade liquidity rating at SGL 2
RATINGS RATIONALE
Remington’s Caa2 Corporate Family Rating reflects its significant demand volatility, weak credit metrics with debt/EBITDA over 9 times, and modest size with revenue around $800 million. Concerns over the sustainability of Remington’s capital structure given its high refinancing risk is factored into the rating. Remington’s narrow product focus in firearms, ammunition and related areas and exposure to raw material commodity prices (i.e., copper and lead) is also reflected in the rating. Moody’s expects earnings to remain under pressure and leverage to remain high. Ratings are constrained by the longer term threat of increased gun regulations (beyond three years). Ratings benefit from strong brand recognition with such lines as Remington Arms and Bushmaster. Also beneficial is an expanding base of firearm enthusiasts and solid market share.
The stable outlook reflects Moody’s expectation that Remington’s credit profile will remain very weak in the year ahead.”
The Future of Remington
We don’t have a crystal ball or a magic genie to give us stock quotes or tell us market trends but there are a few things that we know for sure. Dropping a company’s stock rating increases the amount of money in interest that company will have to pay on debts or loans to banks. It also is likely to make the company’s stock to drop a bit, which lowers the cost of the stock but in the case of Remington it has dropped severely. On July 14, 2017 the closing price for a share of Remington stock was $24.68, that same share as of the closing of the market on November 24, 2017 was now valued at $14.14 a share. That’s not a small market correction that’s a staggering 42.7% drop, I’m no financial genius but I know that spells problems for any company.
Article Reference Materials
Article from Moody’s.Com: https://www.moodys.com/research/Moodys-downgrades-Remington-Outdoors-CFR-to-Caa2-rating-outlook-is–PR_368745
Article from Utica (New York) Observer Dispatch: http://www.uticaod.com/news/20171124/sampp-credit-downgrade-marked-for-remington-outdoor
Article from The Street.Com: https://www.thestreet.com/story/14400219/1/gunmakers-vista-outdoor-remington-earn-downgrades.html
