Pure Fishing Downgraded To ‘SD’ From ‘CCC’ On Financial Sponsor’s Distressed Debt Restructurings

BOSTON (S&P Global Ratings) – S&P Global Ratings took the rating actions listed [below]. The downgrade follows Sycamore’s repurchase of Pure Fishing’s second lien term loan and partial repurchase of its first lien term loan at less than par, which we view as distressed and tantamount to a default. In late July, Pure Fishing’s financial sponsor repurchased its entire second-lien term loan at about 85% of par value. We consider the transaction to be a distressed exchange and tantamount to a default, given the company’s ongoing cash burn and need for additional liquidity this year, as well as its lenders’ receipt of less than par value without adequate offsetting compensation. We view this transaction by a related party in the same light as if the obligor made the same offer in a debt restructuring. That the debt remains outstanding and held by a related party is irrelevant because the investors participating in the transaction received less than they were originally promised.

In addition, despite its use of open market transactions, we view Sycamore’s repurchases of Pure Fishing’s first-lien term loanas distressed and tantamount to a default because we believe the company is currently in distress, which we reflected in our previous ‘CCC’ issuer credit rating. It also reflects our view that the sponsors’ significant aggregate repurchase amount at less than par constitute a debt restructuring. Therefore, we have lowered our issue-level rating on the first-lien term loan to ‘D’ from ‘CCC’.

• South Carolina-based fishing equipment manufacturer Pure Fishing’s financial sponsor, Sycamore Partners Management L.P. (Sycamore), recently announced it repurchased the company’s entire $255 million second-lien term loan (not rated) at a significant discount to face value. In addition, it is our understanding Sycamore repurchased about a quarter of the company’s first-lien term loan through a series of open market transactions at a deep discount to face value over the past several months.
• We consider the second-lien transaction to be a distressed exchange and tantamount to a default because of Pure Fishing’s ongoing cash burn and need for additional liquidity this year, as well as its lenders’ receipt of less than par value without adequate offsetting compensation. For the same reasons, we also view the open market transactions as tantamount to a default and Sycamore’s repurchase of a significant portion at a deep discount to par as constituting a debt restructuring.
• Therefore, we lowered our issuer credit rating on Pure Fishing to ‘SD’ (selective default) from ‘CCC’. At the same time, we lowered our issue-level rating on its first-lien term loan to ‘D’ (default) from ‘CCC’.
• In addition, we updated our recovery analysis to reflect the new debt in Pure Fishing’s capital structure that reduces the residual value of its U.K. subsidiaries, which was previously available to the first-lien lenders. Therefore, we view the recovery prospects for the first-lien lenders as moderately worse and lowered our rounded recovery estimate to 35% from 45%. The ‘4’ recovery rating is unchanged.
• We plan to raise our issuer credit rating on Pure Fishing as soon as practical, likely in the next several days, to a level that reflects the ongoing risk of another potential restructuring or conventional default.

Pure Fishing continues to struggle because of the retail customer de-stocking that has affected the entire industry this year and we expect very weak credit metrics through 2024. We continue to believe the company’s capital structure is unsustainable due to our expectations for high leverage through 2024, with no room for operating missteps or unexpected headwinds. We expect Pure Fishing’s cash flow will be insufficient to cover its fixed charges, which increases the possibility of another restructuring or a conventional default in the next 12 months. We will update our base-case forecast and reassess our ratings on Pure Fishing as soon as practical over the next few days. At that time, we will likely raise our issuer credit rating to ‘CCC’.

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