Rating Action: Moody's confirms Go Wireless' ratings, including B2 CFR; outlook negative
Global Credit Research - 20 Jul 2020
New York, July 20, 2020 -- Moody's Investors Service, ("Moody's") today confirmed all ratings of Go Wireless Holdings, Inc. ("Go Wireless"), including the B2 corporate family rating, B2-PD probability of default rating and B2 rating for the senior secured term loan. The outlook was changed to negative from ratings under review. These actions conclude the review for downgrade that commenced on April 21, 2020.
"As an essential retailer, nearly all of Go Wireless' stores have remained open, excluding those that are located in select malls. The confirmation of all ratings reflects Moody's expectation that the stress to Go Wireless' credit profile will be relatively brief in scope, as sales and traffic will rebound in the second half of 2020 as stay-at-home orders are lifted and 5G wireless devices become available," stated Moody's Vice President Charlie O'Shea, "However, there is a risk that the rebound could be delayed if stay-at-home orders return in certain municipalities, which would meaningfully erode the company's credit metrics and liquidity profile."
The negative outlook reflects the severity of the deterioration in credit metrics due to the impact on store traffic and revenues from the coronavirus pandemic and the risk that the recovery may be weaker than currently anticipated. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Go Wireless of the breadth and severity of the shock, with Go's countermeasures resulting in a moderation of the potential deterioration in credit quality.
..Issuer: Go Wireless Holdings, Inc.
.... Probability of Default Rating, Confirmed at B2-PD
.... Corporate Family Rating, Confirmed at B2
....Senior Secured Bank Credit Facility, Confirmed at B2 (LGD3)
..Issuer: Go Wireless Holdings, Inc.
....Outlook, Changed To Negative From Rating Under Review
Go Wireless' ratings are constrained by the negative impact on revenues and store traffic from the counter-measures to the coronavirus and the lengthened customer replacement/upgrade cycle, which has resulted in a reduction in upgrades and pressured phone and tablet sales, as contract counts have declined. Moody's expects these pressures to result in leverage, as measured by debt/EBITDA, to increase from its current level of nearly 5 times on a trailing twelve-month basis as of March 31, 2020. While leverage is likely to remain elevated, the company continues to evaluate closing underperforming stores as well as realize the benefits from restructuring its sales organization and reducing payroll expenses to reduce expenses and commissions paid to improve profitability. The ratings also consider the company's reliance on cellphone manufacturers for continued product innovation and the risk of volatile customer demand related to new product malfunctions or changing consumer preferences.
Go Wireless benefits from its solid competitive position as a leading independent retailer of Verizon wireless products, as well as a provider of services and accessories for mobile electronic devices. While liquidity is adequate, lower earnings and reduced cash balances are a credit constraint given the high level or amortization on the company's term loan. The rating also recognizes Go Wireless' favorable qualitative profile that benefits from the nondiscretionary nature of cell phones as well as its diverse sources of revenue, including insurance and warranty offerings and accessories. The rating also considers Go Wireless' mutually beneficial relationships with Verizon and cellphone manufacturers, which is a competitive advantage over smaller operators.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be upgraded if Go Wireless maintains a conservative financial policy towards shareholder returns and future acquisitions, with improving operating performance such that debt/EBITDA was maintained below 4.75x and EBITA/interest was sustained above 1.5x and the company maintains good liquidity.
Ratings could be downgraded if any factors cause debt/EBITDA to approach 6.0x and EBITA/interest to approach 1.0x or if liquidity were to weaken.
Go Wireless, headquartered in Las Vegas, NV, is a leading independent retailer of Verizon wireless products, in addition to accessories and services for mobile devices. The company operates nearly 700 stores in 32 states. Revenue for the last twelve month period ended March 31, 2020 was approximately $1 billion. Go Wireless is wholly owned by company management.
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.
For 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_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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.
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.
Charles O'Shea VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Margaret Taylor Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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