Thu 07/16/2020 15:03 PM
Relevant Items:
Vista Outdoor Debt Documents
Covenants Tear Sheet and Debt Document Summary

The below article includes new analysis of Vista Outdoor as well as an issuer covenant card from the Covenants by Reorg team. Request a trial to access the accompanying tear sheet

Vista Outdoor is a designer, manufacturer and marketer of outdoor and shooting sports products. It is headquartered in Anoka, Minn., and has 14 manufacturing and distribution facilities across the United States, Canada, Mexico and Puerto Rico, along with international customer service, sales and sourcing operations in Asia, Canada and Europe. The company owns a portfolio of nearly 40 brands, providing products including sporting ammunition, golf rangefinders, hydration products, outdoor accessories, outdoor cooking solutions and protective equipment for certain action sports. Continue reading for the Covenants by Reorg team's analysis of the company's debt documents.

Vista Outdoor is the borrower under a $450 million ABL facility. The ABL facility is guaranteed by the company’s domestic subsidiaries as well as Advanced Arrow S. de RL de CV and Hydrosport S. de RL de CV and secured by substantially all assets of the loan parties. The company also has $350 million of 5.875% senior unsecured notes due 2023, which are guaranteed by the same subsidiaries as the ABL facility.

Walmart is Vista Outdoor’s most substantial key customer, and sales to Walmart accounted for 13% of Vista’s sales in the fiscal year ended March 31, 2020. In September 2019, Walmart announced it would stop carrying certain short-barrel rifle ammunition and all handgun ammunition. On the company’s Feb. 6 earnings call, CEO Christopher Metz said, “The full impact is just beginning to be felt. As we've been impacted by disruption in the channel over the last several years we acknowledge that it can take up to a year or more in some cases to establish a new equilibrium." On the May 7 earnings call, he stated that the company had “quickly filled a lot of that void. And … we're going to make up for all of that Walmart volume faster than we thought we would.” According to the 10-K for Vista’s fiscal year ended March 31, 2020, sales declined 17.3% year over year due to a large international order in the prior-year quarter, along with lower sales in hydration and hunting and shooting accessories.

The company’s capital structure and leverage metrics as of March 31 are as follows:
Vista Outdoor capital structure as of March 31 from the Covenants by Reorg team

 
Covenant Conclusions

 

  • Liquidity and financial covenants - The ABL facility contains a springing 1.00x fixed charge coverage covenant that applies while ABL availability is less than the greater of $42.5 million and 10% of the line cap. As of March 31, ABL availability was $148 million (approximately 44% of the $339 million line cap, so the financial covenant did not apply as of that time.The company was previously also subject to a minimum availability or stricter 1.15x fixed charge coverage covenant. Those additional financial covenants terminated when the company repaid its term loans in the first quarter of 2020.

  • Debt and liens - The debt and lien baskets under the ABL permit the company to incur $348 million of senior secured debt, which includes ABL availability of $148 million, an incremental ABL basket of $150 million and a general basket sized at $50 million, which may be secured by the ABL collateral on a pari or junior basis. The ABL agreement also permits senior unsecured debt of $250 million, which may be incurred by foreign subsidiary nonguarantors on a structurally senior basis, and $350 million of unsecured or subordinated debt, which may be incurred only by loan parties.Under the notes, the company has significantly greater secured capacity - up to $958 million, including $882 million available under the credit facility basket ($619 million assuming the ABL is fully drawn) and $75 million available under the general liens basket, which could be paired with capacity under the ratio or general debt baskets. In addition, the notes permit the company to incur $225 million of structurally senior debt and $150 million of unsecured debt, in each case, plus additional amounts available under the 2.00x fixed charge coverage ratio debt basket.There is also a subcap on nonguarantor debt incurred under certain baskets, which caps the aggregate amount of such debt under most of the material debt baskets at $250 million. It contains a noteholder-friendly protection in that the cap only applies to those baskets, but for purposes of calculating usage of the subcap, it counts all nonguarantor debt, even if not classified under those baskets.

  • Dividends, investments and prepayments - The ABL agreement’s restrictive covenants do not contain the concept of a “restricted group,” and the covenants apply to the company and all of its subsidiaries.The ABL agreement permits dividends and investments if an availability-based “Payment Condition” is satisfied and the transaction is permitted under the 2023 notes. If the pro forma FCCR is at least 1.00x, then the Payment Condition test requires pro forma availability to exceed the greater of $52 million and 12.5% of the line cap. Otherwise, the test requires pro forma availability to exceed the greater of $72.5 million and 17.5% of the line cap. The Payment Condition was satisfied as of March 31 because the company then had $148 million of ABL availability (44% of the $339 million line cap).Unlike the ABL, the 2023 indenture contains the concept of a “restricted group.” Under the 2023 notes, the company’s ability to transfer assets outside of the restricted group is more limited. As of March 31, the notes did not permit the company to make more than $225 million of transfers outside of the restricted group, plus additional amounts under a buildup basket based on consolidated net income from April 1, 2015. The notes also contain a $75 million general RP basket, which can be used to make dividends or investments, plus an RP basket that permits $50 million of dividends per fiscal year.The ABL facility contains no prohibition on prepaying the 2023 notes.


--Jeff Brenner
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