Boardriders Inc.

The negative outlook reflects that we could lower the rating if the company's turnaround plans are unsuccessful or if the company is unable to refinance its ABL facility that becomes current in in April 2022, thereby pressuring cash flow and liquidity such that a default becomes inevitable within six months. We could lower the rating if believe a default could become inevitable within six months if: The company faces another liquidity shortfall because of its inability to extend the maturity of the ABL facility; or EBITDA declines due to increased freight, transportation, labor and materials costs; or Litigation expenses and potential settlements cannot be covered with its existing cash and ABL availability. We could consider a positive rating action if:

...We view Boardriders' capital structure and its debt service burden as unsustainable. The company's adjusted leverage remains elevated at 11.8x for the last-12-months (LTM) ended July 31, 2021. Although we expect substantial EBITDA improvement in fiscal 2021 (ending October 2021) compared to fiscal 2020 due to lower discounts, cost reductions and the nonrecurrence of pandemic-related store closures, we view the company's capital structure as unsustainable and forecast leverage to be elevated at about 10x over the next two years. We also expect the company's free operating cash flow to remain negative for the next two years due to planned capital spending and working capital outflows for growth investments. EBITDA interest coverage will remain in the low-1x area as the company's total interest burden (including dividend accrued on the preferred stock, which we treat as a debt-like obligation) is significant at about $70 million a year. The company faces refinancing risk over the next 12 months...

Full Report