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Great Outdoors Group, LLC -- Moody's assigns B1 to Great Outdoors Group's term loan; affirms Ba3 CFR

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Rating Action: Moody's assigns B1 to Great Outdoors Group's term loan; affirms Ba3 CFRGlobal Credit Research - 26 Feb 2021New York, February 26, 2021 -- Moody's Investors Service (Moody's) assigned a B1 rating to Great Outdoors Group, LLC's (GAO, f.k.a. Bass Pro Group, L.L.C's) proposed term loan. Concurrently, Moody's affirmed the company's Ba3 corporate family rating (CFR) and Ba3-PD probability of default rating (PDR). The outlook remains stable.Proceeds from GAO's proposed $4.5 billion term loan due 2028 and $1.2 billion balance sheet cash will be used to refinance the company's existing $4.1 billion term loan due 2024, pay for its Sportsman's Warehouse acquisition, fund a minority shareholder equity redemption and general corporate purposes.Moody's took the following rating actions for Great Outdoors Group, LLC:.... Corporate family rating, affirmed Ba3.... Probability of default rating, affirmed Ba3-PD.... Senior secured term loan B due 2028, assigned B1 (LGD4).... Outlook, remains stableThe rating on the existing term loan due 2024 will be withdrawn at close.RATINGS RATIONALEGAO's Ba3 CFR is supported by its well-recognized brand names and leading position in the outdoor recreational products retail sector. The company's margins benefit from its sizable and stable credit card income stream and significant owned brand penetration. In addition, GAO's business model as a destination experiential retailer sets it apart from mass market and big box competitors that do not provide the level of in-store customer service that is the foundation underpinning its loyal customer base. Further, its diverse product assortment and value price points mitigate earnings pressure in economic downturns. The Sportsman's Warehouse acquisition will further increase GAO's scale and is a good strategic fit, since it serves a very similar customer demographic and expands the company's presence into complementary geographic regions. Given the successful integration of Cabela's since its 2016 acquisition, Moody's expects Sportsman's Warehouse integration risk to be modest and synergies to be realized over time from cost reductions and introducing GAO's owned brands.GAO's credit profile is constrained by its high leverage. Moody's estimates pro-forma debt/EBITDA to be 4.4x and EBIT/interest expense 2.6x, based on GAO's preliminary 4Q 2020 results and Sportsman's Warehouse LTM Q3 2020. GAO's revenues and company adjusted EBITDA grew by approximately 15% and 32% respectively in 2020, as a result of pandemic-driven lifestyle changes and increased participation in outdoor activities. However, operating performance could weaken over the next 12-24 months once health and safety concerns abate, leading consumers to pivot back to other spending categories such as travel and entertainment. Moody's projects leverage increasing towards 4.9x and EBIT/interest expense declining to 2.2x. The rating also reflects the company's aggressive financial strategies, including its use of cash flow and incremental debt for member distributions, redemption of preferred and common equity interests issued by Bass Pro's parent. In addition, as a retailer, Bass Pro needs to make ongoing investments in its brand and infrastructure, as well as in social and environmental drivers including responsible sourcing, product and supply sustainability, privacy and data protection. The company's ongoing offering of firearms and ammunition at a time when several other large retailers have reduced their offerings in the category also represents a social consideration.Moody's expects the company to have good liquidity over the next 12-18 months. Moody's expects free cash flow to be modestly positive in 2021. Liquidity will also be supported by access to an undrawn $1.275 billion asset-based revolver, Moody's expects to have ample availability at all times.The stable outlook reflects Moody's expectation that despite a likely normalization in demand in the outdoor, firearms and sports categories in 2021 following the surge in 2020, credit metrics will remain in line with the Ba3 rating and the company will have good liquidity over the next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be downgraded if operating performance materially deteriorates, financial policies become more aggressive, or liquidity weakens. Quantitatively, the ratings could be downgraded if Moody's-adjusted debt/EBITDA is sustained above 5.5x or EBITA/interest expense is below 1.75x.The ratings could be upgraded if the company demonstrates the ability and willingness to reduce debt/EBITDA (on a Moody's adjusted basis) below 4.0x and EBITA/interest expense above 2.5x on a sustained basis, while maintaining good liquidity.Headquartered in Springfield, Missouri, Great Outdoors Group LLC (GAO, f.k.a. Bass Pro Group, L.L.C's), a wholly-owned subsidiary of The Great American Outdoors Group LLC, operates Bass Pro Shops and Cabela's, retailers of outdoor recreational products throughout the US and Canada. The company also manufactures and sells recreational boats and related marine products under the Tracker, Mako, Tahoe, Nitro, Ranger Boats, and Triton brand names. The company also owns the Big Cedar Lodge in Ridgedale, Missouri and Big Cypress Lodge in Memphis, Tennessee. Bass Pro is majority owned by its founder, John Morris. Pro-forma for the Sportsman's Warehouse acquisition, revenues were approximately $8.8 billion.The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Raya Sokolyanska Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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