Remington seeks liquidity bridge amid earnings slump

Remington Outdoor Company is working with lenders to raise additional liquidity amid continually dismal earnings results, according to two sources following the situation.

The gun manufacturer has asked lenders for amendments that would allow it to raise an additional USD 10m of liquidity between two of its outstanding term loans, the sources said. The borrowings would occur under Remington’s USD 55m FILO TL and USD 85.5m priority TL, they added.

Remington’s illiquid capital structure also includes a USD 105m exit TL — the result of the borrower’s 2017 bankruptcy, in which 82.5% of the company’s equity was turned over to prepetition term loan holders.

The liquidity raise comes as Remington’s earnings have suffered a series of negative-EBITDA quarters, the sources said, prompting speculation among investors that the company is seeking a bridge to a potential Democratic presidency, when gun sales typically take off due to fears of tighter firearms regulations.

“We think they’re keeping a free option open in case a Democrat wins office and there’s some buzz about Second Amendment rights to drive gun sales,” one of the sources said.

Remington reported adjusted EBITDA of negative USD 8.3m for 2Q19, compared to negative USD 9.3m in 1Q19 and negative USD 1.2m in 4Q18, the sources said. Revenue in 2Q19 declined 33% year-over-year to USD 100m, from USD 150m in 2Q18, they added.

Remington’s liquidity at 30 June was minimal, the sources said. The company had around USD 14m in cash as of the quarter-end, one of the sources specified. The additional USD 10m in loan capacity would take pro forma quarter-end liquidity to around USD 24m, he added.

Walmart made up 12% of the quarter’s sales, and the retail giant continues to make purchases from Remington despite the recent shooting at a Walmart store in El Paso, TX, one of the sources said. Ammunition sales were weak for the quarter, partially due to lower demand from the military, the source added.

In tandem with its earnings release, Remington announced it was conducting a data-driven strategic review, which would include closing facilities and rightsizing production. The company also said it is working down obsolete inventory, but didn’t quantify how much, two of the sources said.

Along with the liquidity raise, the loan amendments include reducing the required collateral base floor to 100% from 105% of the priority term loan. Additionally, the exit term loan would only require one rating from either S&P or Moody’s, the sources said.

Remington exited Chapter 11 in May 2018, after suffering a decline in sales over 2017, due to lower demand that failed to meet its increased production. Several gun manufacturers reported that gun sales dropped following Donald Trump’s election as president in 2016.

Remington declined to comment.

2019 Debtwire

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