SSH Holdings Inc. (Spencer Spirit) Upgraded To 'B-' On Improved Operating Results; Outlook Stable


  • Novelty gift and Halloween retailer SSH Holdings Inc.(doing business as Spencer Spirit) has reported better-than-anticipated results through the fiscal 2018 third quarter, which includes the very important Halloween season, and we expect continued moderate EBITDA growth over the next 12 months.
  • We raised the issuer credit rating to 'B-' from 'CCC+', and revised the outlook to stable from negative.
  • The stable outlook incorporates our expectation that mid-single-digit EBITDA growth will support steady improvement in credit metrics and moderately positive free operating cash flow over the next year.
NEW YORK (S&P Global Ratings) Jan. 4, 2019—S&P Global Ratings today took the 
rating actions listed above. The rating action reflects our view that 
operating performance and credit metrics will continue to improve over the 
next 12 months, increasing the likelihood that the company could successfully 
refinance its debt at par. Year-to-date results are ahead of our expectation 
at both the Spirit Halloween and Spencer's segments. We expect further sales 
and margin expansion over the next year driven by good merchandising, expanded 
product development capabilities, and effective real estate/supply chain 
operations at pop-up Spirit Halloween stores. In addition, SSH has 
demonstrated willingness to reduce debt, evidenced by $25 million of 
first-lien term loan pre-payment in fiscal 2018 ($10 million in January 2018 
and $15 million in December 2018). However, we note that merchandise sold at 
Spencer's and Spirit Halloween is highly discretionary with nearly half of the 
sales concentrated in the Halloween season, and we believe that potential 
weakening of macroeconomic conditions and consumer fundamentals from current 
peak levels could pressure company profitability. 

The stable outlook incorporates our expectation that mid-single-digit EBITDA 
growth will support steady improvement in credit metrics and moderately 
positive FOCF over the next year. Our forecast shows fixed-charge coverage of 
about 1.5x at fiscal year-end 2019.

We could lower the rating if operating performance is weaker-than-expected, 
leading us to believe that the capital structure is unsustainable because of 
greater refinancing risk. This could happen if SSH's EBITDA base significantly 
deteriorates because consumers materially limit spending on highly 
discretionary merchandise, and greater competitive pressures substantially 
erode the company's market share. We could also lower the rating if 
deteriorating operating performance increases the possibility of a proactive 
effort to restructure the company's significant balance sheet debt obligations 
with a distressed exchange or another restructuring action.

We could raise the rating if we expect double-digit percent EBITDA growth to 
continue, resulting in fixed-charge coverage in the high-1.0x area. This could 
happen if comparable sales at Spencer's grow in the mid-single-digit percent 
range and average store sales at Spirit increase in the high-single-digit 
percent range, while EBITDA margin expands 300 basis points (bps). We would 
also believe that SSH could refinance its debt in full at par at an interest 
rate supporting a high-1x fixed-charge coverage ratio.
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