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Rating Action:

Moody's revises Remington Outdoor's outlook to negative and lowers liquidity rating

21 May 2015

New York, May 21, 2015 -- Moody's Investors Service revised Remington Outdoors, Inc.'s ("Remington" or "Remington Outdoors") rating outlook to negative from stable due to its weaker than expected operating performance, which is causing a prolonged period of weak credit metrics. The speculative grade liquidity rating was downgraded to SGL 2 from SGL 1. All other ratings were affirmed, including the B2 Corporate Family Rating.

"We expect revenue and EBITDA to gradually improve as the year progresses," said Kevin Cassidy, Senior Credit Officer at Moody's Investors Service. "The negative outlook, however, reflects the uncertainty about the pace of the turn around and the possibility that leverage could remain high for an extended time," noted Cassidy. Moody's expects leverage to be sustained between 5 and 6 times over the long term.

The downgrade in the speculative grade liquidity rating to SGL 2 is due to Moody's expectation of modest free cash flow generation over the next 12-18 months combined with deteriorating cash balances. The recent announcement by the company's owner, Cerberus Capital Management, permitting any limited partner that owns an interest in Remington to get bought out, is effectively a share repurchase. This, coupled with the company's recent weak operating performance has lead to lower cash balances. Moody's expects the share repurchase to be no more than $60 million.

Ratings affirmed:

Corporate Family Rating at B2;

Probability of Default Rating at B2-PD;

$580 million secured term loan due 2019 at B2 (LGD 3) ;

$250 million secured notes due 2020 at Caa1 (LGD 5);

Rating downgraded:

Speculative grade liquidity rating to SGL 2 from SGL 1

RATINGS RATIONALE

Remington Outdoors' B2 Corporate Family Rating reflects its modest size with revenue of around $1 billion, volatility in demand, narrow product focus in firearms, ammunition and related areas and exposure to volatile raw material prices (i.e., copper and lead). The rating also reflects consumer's vulnerability to gas prices and the corresponding impact on discretionary purchases. EBIT margins are modest at around 7%, but Moody's expects margins to increase to over 9% in 2015 as demand stabilizes and cost efficiency measures take hold. Although leverage is high at over 9 times, Moody's expects leverage to be below 8.5 times by the end of 2015 and then approach 6.5 times in 2016. The decrease in leverage will be driven by earnings growth and debt repayments with free cash flow. Rating benefits from the strong brand recognition of operating companies such as Remington Arms and Bushmaster, an expanding base of firearm enthusiasts, solid market share and a solid commitment by its financial sponsors.

The negative outlook reflects the possibility that leverage could remain high for an extended period of time. The industry's modest demand trends and the company's weak operating performance are also factored into the outlook.

If revenue and earnings don't begin to increase in the next few quarters, ratings could be downgraded. Ratings could also be downgraded if liquidity materially declines or if leverage doesn't begin to recede. Key credit metrics that could prompt a downgrade are: debt/EBITDA sustained above 6.5 times or persistent single digit EBIT margins.

There is limited upward rating pressure given the negative outlook and the company's weak operating performance and high leverage. Key credit metrics that could prompt an upgrade over the longer term are: debt/EBITDA sustained below 5 times and recurring mid teen EBIT margins.

Subscribers can find further details in the Remington Outdoors Credit Opinion published on Moodys.com.

The principal methodologies used in this rating were Consumer Durables Industry published in September 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Remington Outdoors is a supplier of firearms, ammunition and related products with leading market positions across its major product categories. The company designs, manufactures, and markets a broad product line which services the hunting, shooting sports, law enforcement and military end-markets under recognized brands including Remington, Marlin, Bushmaster, and DPMS/Panther Arms, among others. Revenue for the year ended December 31, 2014, approximated $940 million. The company is controlled by Cerberus Capital Management.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Kevin Cassidy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's revises Remington Outdoor's outlook to negative and lowers liquidity rating
No Related Data.
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