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Rating Action:

Moody's upgrades GameStop's CFR to B3, outlook changed to stable

08 Jul 2020

New York, July 08, 2020 -- Moody's Investors Service, ("Moody's") upgraded the ratings of GameStop Corp. ("GameStop") following the announcement that approximately 52% of the existing senior unsecured noteholders have agreed to exchange those notes for new secured notes due 2023. Ratings upgraded include the company's Corporate Family Rating to B3 from Caa1, Probability of Default Rating to B3-PD from Caa1-PD, senior unsecured rating to Caa1 from Caa2, and senior secured rating to B2 from B3. The company's Speculative Grade Liquidity rating is unchanged at SGL-3. The outlook is stable. This concludes the review for upgrade that was initiated on June 5, 2020.

"The exchange of more than 50% of the company's senior unsecured notes improves GameStop's debt maturity profile as about $216 million of its $415 million unsecured notes that were due in March 2021 are now due in March 2023," stated Pete Trombetta, Assistant Vice President at Moody's. In addition, the upgrade of the CFR to B3 reflects Moody's expectation that GameStop will repay at par the remaining unsecured notes upon their maturity in March 2021 using excess cash balances. This improved debt maturity profile is especially important given the industry and earnings pressure the company is facing including the impact from the coronavirus pandemic and delayed software releases. Despite the improvements in liquidity from the eased maturity schedule, the company's SGL-3 is unchanged at this time as Moody's expects the company to generate free cash flow deficits until the fourth quarter of 2020 and it will use about $198 million of cash to repay the remaining notes both of which will be supported by its sizable cash balances.

Upgrades:

..Issuer: GameStop Corp.

.... Probability of Default Rating, Upgraded to B3-PD from Caa1-PD, Previously on Review for Upgrade

.... Corporate Family Rating, Upgraded to B3 from Caa1, Previously on Review for Upgrade

....Senior Secured Regular Bond/Debenture, Upgraded to B2 (LGD3) from B3 (LGD3), Previously on Review for Upgrade

....Senior Unsecured Regular Bond/Debenture, Upgraded to Caa1 (LGD5) from Caa2 (LGD5), Previously on Review for Upgrade

Outlook Actions:

..Issuer: GameStop Corp.

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

GameStop's B3 Corporate Family Rating is constrained by its weak EBIT/interest coverage of less than 1.0x, the ongoing secular pressures that GameStop is facing including new technology trends that pressure the traditional business gaming model such digital downloads and streaming and subscription services, and its vulnerability to product renewal cycles including new gaming console launches. GameStop's CFR also reflects Moody's expectation for lower EBITDA in 2020 despite the material improvement in earnings that is expected in the fourth quarter of 2020. In the near term, GameStop's credit profile reflects the disruption caused by the coronavirus. Moody's expects the second quarter of 2020 to be the trough in terms of sales declines as most of the company's stores have reopened across the US and the world. However, Moody's expects the company will continue to see ongoing pressure on revenue and margins until the new console launches in the fourth quarter of 2020, which should drive a recovery in performance.

GameStop benefits from its adequate liquidity and improved working capital management. The company's credit profile is further supported by its moderate scale and international reach, leading market position, and the flexible footprint of its store base.

The stable outlook reflects Moody's expectation that the company will have adequate liquidity to repay in full at par the March 2021 maturity of its remaining outstanding unsecured notes and will see earnings improvement when the new consoles are introduced later this year.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ratings could be upgraded if GameStop is able to return to growth in the company's core segments, including new and pre-owned games, with expanding margins and top line revenue growth. An upgrade would also require the company maintain at least adequate liquidity. Quantitatively, an upgrade could occur if debt/EBITDA was maintained below 3.5x, and EBIT/interest was comfortably over 2.0x. Ratings could be downgraded if the fourth quarter console replacement cycle is weaker than anticipated, if the company's liquidity were to deteriorate, or if EBIT/interest does not improve to above 1.0x.

GameStop Corp., headquartered in Grapevine, Texas, is the world's largest dedicated retailer of video game products. GameStop operates over 5,300 stores in 14 countries with revenue of around $6.5 billion for the last twelve-month period ended February 1, 2020.

The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Peter Trombetta
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Margaret Taylor
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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