The Sports Authority’s missed interest payment to loan investors has prompted downgrades from two major rating agencies.
The company missed the $21 million payout due Jan. 15 in the midst of creditor discussions, Bloomberg News reported last week.
Sports Authority, based in Englewood, Colo., is owned by private equity firm Leonard Green & Partners.
Standard & Poor’s has drastically lowered its corporate credit rating for Sports Authority to ‘D’ from ‘B-‘, it said Thursday. The same action was taken for the company’s $300 million term loan due 2017.
S&P said that in addition to negotiating with lenders, Sports Authority has also retained Rothschild as an outside financial adviser to explore restructuring options.
Similarly, on Wednesday, Moody’s Investors Service bumped the company’s corporate family rating, as well as the rating for its term loan, down to ‘Caa1’ from ‘Caa3’.
Moody’s based its action on an expected default, given the missed payment, and Sport’s Authority’s poor liquidity. It will have 30 days before it triggers an event of default.
“The company is engaged in discussions with its lenders regarding ways to address debt maturities beginning in May 2017 as well as improving its capital structure, which Moody's believes is unsustainable at current weak levels of operating performance,” the rating agency said Jan. 20. “The company's leverage is very high and interest coverage is weak, at around 7.0x and less than 1.0x, respectively.
Also, if a default does occur, Moody’s does not expect Sports Authority to be able to repay its debt at par.