Research: Rating Action: Moody’s Downgrades Wolverine’s CFR to Ba2

New York, August 19, 2022 – Moody’s Investors Service (Moody’s) has downgraded Wolverine World Wide, Inc.’s (Wolverine) ratings, including corporate family rating to Ba2 from Ba1, probability of default rating to Ba2-PD from Ba1- Rating of PD and senior unsecured notes to Ba3 from Ba2. The company’s speculative liquidity rating remains SGL-2. The outlook changed from negative to stable.

The downgrade reflects Wolverine’s high leverage relative to initial expectations from Moody’s and similarly rated peers, as well as risks to the pace of deleveraging given macro, foreign currency and on-chain pressures sourcing and more promotional retail environment. In addition, the downgrade reflects governance factors, in particular Wolverine’s still high level of debt following the acquisition of Sweaty Betty and reduced cash flow generation and share buybacks which have impeded the debt refund.

Moody’s has taken the following rating actions for Wolverine World Wide, Inc.:

….Corporate Family Rating, downgraded from Ba1 to Ba2

….Default rating probability, downgraded to Ba2-PD from Ba1-PD

….Senior Unsecured Global Notes, downgraded from Ba2 (LGD5) to Ba3 (LGD5)

….Outlook, Changed from negative to stable

RATINGS RATIONALE

Wolverine’s Ba2 CFR benefits from its diverse distribution in the global footwear industry and the footwear category’s reliable replenishment demand cycle due to normal product wear and tear. The company’s product portfolio appeals to a wide range of consumer needs and demographics. Approximately three-quarters of Wolverine’s revenues are generated by its top 5 brands, including Merrell, which is established, differentiated and well positioned in its segment. Leverage is currently high, with debt/EBITDA of 5.0x for the twelve months ended July 2022, in part due to additional debt resulting from the acquisition of Sweaty Betty in 2021. Moody’s expects debt/ EBITDA will fall to a high of 3x over the next 18 months, due to the payback of the revolver with free cash flow generation and modest earnings growth. Moody’s expects inflationary pressures to be dampened by continued strong spending on casual and athletic footwear in the United States in the near term, pent-up demand internationally and improving supply chain conditions. ‘supply. The rating is also supported by the company’s globally balanced financial strategies and its good liquidity.

At the same time, the ratings are limited by the company’s relatively low income scale, narrow product concentration primarily in the footwear segment, and fashion risk. Additionally, Wolverine’s growth strategy has included acquisitions, which introduce event, execution and financing risks. As a footwear company, Wolverine is also subject to social and environmental risks related to responsible sourcing, treatment of labor, natural capital and customer relationships.

The stable outlook reflects Moody’s expectation that Wolverine will reduce leverage and maintain good liquidity.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Ratings could be upgraded if the company achieves and demonstrates a commitment to maintaining lower leverage on a sustainable basis. An upgrade would also require continued strong revenue and earnings performance, while maintaining at least good liquidity. Quantitative metrics include debt/Moody’s adjusted EBITDA held below 3.5x and EBITA/interest expense held above 4x.

Ratings could be downgraded if operating performance or liquidity deteriorates, or if the company undertakes aggressive financial strategy actions such as significant debt-financed share buybacks or acquisitions. Quantitative measures include debt adjusted by Moody’s/EBITDA maintained above 4.5x or EBITA/interest expense below 3.0x.

Based in Rockford, Michigan, Wolverine World Wide, Inc. is a designer and marketer of casual, active lifestyle, work, outdoor sports, athletic, children’s and outdoor footwear and apparel. uniforms. The Company’s brand portfolio includes Merrell, Saucony, Sperry, Sweaty Betty, Hush Puppies, Wolverine, Keds, Chaco, Bates, HYTEST and Stride Rite. The company is also the global footwear licensee of the Cat and Harley-Davidson brands. Revenue for the last twelve months ended July 2, 2022 was $2.6 billion.

The main methodology used in these ratings was Apparel published in June 2021 and available on https://ratings.moodys.com/api/rmc-documents/72775. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the announced credit rating metric(s) described above.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information 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
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Margaret Taylor
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Comments are closed.