Ranking Motion: Moody’s affirms Bowlero’s B2 Company Household Ranking; outlook modified to damaging
World Credit score Analysis – 10 Dec 2020
New York, December 10, 2020 — Moody’s Buyers Service, (“Moody’s”) affirmed Bowlero Corp.’s (Bowlero) B2 Company Household Ranking (CFR) and B2-PD Likelihood of Default Ranking (PDR). Moreover, Moody’s affirmed the B2 score on the first lien credit score facility which features a revolver and time period mortgage B issued by Bowlero’s subsidiary, Kingpin Intermediate Holdings, LLC (Kingpin). The score outlook was modified to damaging from secure. Moody’s additionally assigned a damaging outlook on the Kingpin subsidiary.
Bowlero’s damaging outlook displays the projected impression of the current surge within the variety of constructive coronavirus circumstances and better restrictions on the power to function places throughout the firm’s seasonally strongest a part of the 12 months. Moody’s expects Bowlero will nonetheless have good liquidity and can recuperate because the impression of the pandemic subsides, however leverage ranges are projected to stay elevated over the following few years as the quantity of debt has elevated in 2019 and 2020. As of November 1, 2020, Bowlero was capable of reopen over 85% of its facilities with differing ranges of restrictions, however the current enhance within the variety of coronavirus circumstances might result in further closings or restrictions which can gradual Bowlero’s restoration. Moody’s additionally expects client demand will lower within the close to time period because of the elevated variety of new circumstances throughout the pandemic.
Affirmations: ..Issuer: Bowlero Corp.
…. Company Household Ranking, Affirmed B2
…. Likelihood of Default Ranking, Affirmed B2-PD
..Issuer: Kingpin Intermediate Holdings, LLC
….Senior Secured Financial institution Credit score Facility, Affirmed B2 (LGD3)
..Issuer: Bowlero Corp.
….Outlook, Modified To Detrimental From Secure
..Issuer: Kingpin Intermediate Holdings, LLC
….Outlook, Modified To Detrimental From No Outlook
Bowlero Corp.’s (fka Bowlmor AMF Corp.) leverage could be very excessive at over 15x as of the top of September 2020 (excluding Moody’s customary lease changes) as a result of well being restrictions and financial disruption attributable to the coronavirus outbreak that has led to bowling heart closures and working restrictions along with greater quantities of debt. The pandemic has led to a spike in leverage that Moody’s expects will start to lower in direction of the second half 2021 supported by constructive vaccine developments. Whereas working efficiency is projected to enhance because the pandemic abates and the financial system recovers, Moody’s expects some shoppers might keep a level of social distancing and keep away from giant crowds within the close to time period. Outcomes are additionally anticipated to be delicate to the financial system, significantly for leisure bowlers, and will likely be seasonal with the strongest intervals occurring within the quarters ending in December and March.
Bowlero has realized substantial value financial savings over the previous a number of years whereas rising income, and Moody’s expects the corporate will obtain further value financial savings and restrict capex within the close to time period to protect liquidity. Bowlero has been profitable rising the variety of greater margin informal bowlers traditionally, who’re prone to spend greater than conventional league bowlers. The corporate has additionally demonstrated good self-discipline with its low cost coverage, whereas elevating costs and rising its group occasion enterprise. Bowlero additionally advantages from good geographic variety and dimension with 296 facilities as of FYE 2020 which helps offset the impression from a surge within the pandemic in any area or from extra restrictive measures imposed by native and state regulators. Capital expenditures to improve present places have additionally contributed materially to progress and are anticipated to renew as soon as the coronavirus pandemic subsides.
The coronavirus outbreak, the federal government measures put in place to include it, and the weak international financial outlook proceed to disrupt economies and credit score markets throughout sectors and areas. Moody’s evaluation has thought of the impact on the efficiency of client leisure spending from the present weak US financial exercise and a gradual restoration for the approaching months. Though an financial restoration is underway, it’s tenuous and its continuation will likely be carefully tied to containment of the virus. Consequently, the diploma of uncertainty round our forecasts is unusually excessive. Moody’s regards the coronavirus outbreak as a social threat beneath our ESG framework, given the substantial implications for public well being and security.
A governance consideration that Moody’s considers in Bowlero’s credit score profile is the corporate’s comparatively aggressive monetary coverage traditionally. Bowlero issued $105 million in further debt in November 2019 which was anticipated for use for future acquisitions or the renovation of bowling facilities. Whereas Bowlero benefited from the extra liquidity of the add on time period mortgage throughout the pandemic, Moody’s considers this to be indicative of a comparatively aggressive monetary coverage. Following the pandemic, Moody’s expects Bowlero to have a extra reasonable monetary coverage centered on lowering elevated leverage ranges. Atairos Group, Inc. is almost all fairness holder of the corporate.
Moody’s expects Bowlero can have good liquidity over the following 12 months, regardless of projected damaging free money movement within the close to time period as some bowling facilities stay closed or function with further restrictions. As of the top of September 2020, the corporate had a major money steadiness with $40 million drawn beneath its $50 million revolver due in July 2022. Bowlero just lately entered into an settlement for an extra $150 million revolver (not rated) with credit score help offered by Atairos and drew $45 million to bolster liquidity. The remaining $105 million is out there to be drawn topic to approval by Atairos and the prior satisfaction of different customary circumstances (together with monetary circumstances).
Bowlero additionally entered into an modification to offer further flexibility with its sale leaseback settlement to additional help liquidity and benefited from enterprise interruption insurance coverage proceeds. Moody’s expects Bowlero to scale back capex within the close to time period till the pandemic abates. The popular fairness turns into redeemable in future intervals which elevates the potential for extra debt issuance over time. The time period mortgage B is covenant lite and the revolver is topic to a springing first lien leverage ratio covenant of 5.75x when better than 35% of the ability is drawn. Nevertheless, Bowlero just lately executed an modification that suspends the monetary covenant relevant to the revolving facility till March 2022. The excellent debt is all first lien.
The damaging outlook displays Moody’s expectation that Bowlero’s restoration will likely be slowed by the rise within the variety of coronavirus circumstances throughout the firm’s traditionally strongest working season with continued 12 months over 12 months declines in efficiency till the quarter ending in June 2021. Efficiency is projected to enhance extra quickly throughout the second half of 2021 as a vaccine turns into extra broadly disseminated with working outcomes approaching historic ranges throughout 2022. Nevertheless, greater quantities of debt incurred on the finish of 2019 and in 2020 are projected to result in excessive leverage ranges for an prolonged time frame. Consequently, Moody’s doesn’t anticipate leverage to lower to the 7x vary till the center of 2022.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The scores may very well be downgraded if Bowlero’s efficiency improves slower than Moody’s initiatives or anticipated leverage ranges will likely be sustained above 7x. Fairness pleasant transactions, further long run debt to offer liquidity or repay excellent revolver balances can also result in a downgrade. A weakened liquidity place or persevering with damaging free money movement might additionally strain the scores.
An improve is just not anticipated within the close to time period as a result of impression of the pandemic and better projected leverage ranges. Nevertheless, Moody’s might improve Bowlero’s scores if leverage had been to lower under 4.5x (together with Moody’s lease changes) on a sustainable foundation with free money movement to debt (as calculated by Moody’s) effectively above 5%. Constructive natural income progress with an excellent liquidity place would even be required as would confidence that the sponsor wouldn’t pursue future debt financed, fairness pleasant transactions.
Bowlero Corp. (fka Bowlmor AMF Corp.) is the biggest bowling heart operator within the US with further places in Canada and Mexico. The corporate is privately owned and was created following the acquisition of AMF by Strike Holdings LLC (Bowlmor) in 2013. The corporate acquired 85 bowling facilities from Brunswick Company in 2014. The mixed firm operates bowling facilities beneath the AMF, Bowlero, and Bowlmor manufacturers. Atairos Group, Inc. acquired majority possession of the corporate in July 2017.
The principal methodology utilized in these scores was Enterprise and Client Service Business revealed in October 2016 and out there at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Ranking Methodologies web page on www.moodys.com for a duplicate of this technique.
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Scott Van den Bosch VP - Senior Credit score Officer Company Finance Group Moody's Buyers Service, Inc. 250 Greenwich Road New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653 Stephen Sohn Affiliate Managing Director Company Finance Group JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653 Releasing Workplace: Moody's Buyers Service, Inc. 250 Greenwich Road New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653
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