Winebow Group LLC Downgraded To 'CCC' As Debt Maturities Approach Amid Economic And Market Uncertainty

  • U.S.-based wine and spirits distributor Winebow Group LLC faces refinancing risk as its unrated $135 million asset-based lending (ABL) revolving credit facility will become current on March 31, 2020, and its $230 million first-lien term loan becomes current at the start of July. The company also has a $130 million second-lien term loan which matures on Jan. 2, 2022 and will need to be addressed in the near-term.
  • We believe the current market environment, including an eroding economic outlook because of the coronavirus pandemic, will impair Winebow's ability to refinance its capital structure on satisfactory terms before its upcoming maturities.
  • We are lowering our issuer credit rating on Winebow to 'CCC' from 'CCC+'.
  • At the same time, we are lowering our issue-level ratings on the company's first-lien term loan to 'CCC' from 'CCC+' with an unchanged recovery rating of '3' and its second lien term loan to 'CC' from 'CCC-' with an unchanged recovery rating of '6'.
  • The negative outlook reflects that we could lower the rating further if we believe the likelihood of a default over the next six months has increased.
NEW YORK (S&P Global Ratings) March 25, 2020—S&P Global Ratings today took the rating actions listed above.
The downgrade reflects constrained liquidity and refinancing risk as a result of near-term debt maturities, which is aggravated due to economic disruptions caused by the COVID-19 pandemic.  Winebow's ABL matures in approximately 12 months from now at the end of March 2021, followed shortly by its first-lien term loan on July 1, 2021. We believe the company's inability to refinance its debt before it matures has become more of a possibility due to current volatility in the debt capital markets, especially limiting access to credit for speculative-grade issuers such as Winebow. Moreover, the company's ABL facility remains heavily drawn ($103 million balance as of Dec. 31, 2019) and we do not expect the company to generate enough cash to repay the ABL balance by maturity. As a result, the company's liquidity has become constrained. Additionally, the company has tight cushion (less than 10%) on the springing fixed-charge covenant ratio under its ABL agreement(triggered when availability is less than greater of 10% of borrowing base or $13.5 million). Therefore, we believe the company has limited access to additional drawings as that may cause a covenant breach. This, combined with the company's very high leverage and minimal cash flow generation, makes us believe the company may encounter a default over the next six to 12 months, including a payment default, covenant breach, or possibly a distressed debt exchange.
The negative outlook reflects that we could lower the rating further if the company does not make concrete progress on refinancing its upcoming debt maturities, thus increasing the likelihood of a default over the next six months.
We could lower our ratings on Winebow if we believe a default over the next six months is inevitable. This could occur if the company does not make significant progress toward refinancing before its first-lien term loan comes current in July 2020 or if we believe the company will encounter a liquidity crunch or payment default due to operational challenges.
We could raise the ratings if the company addresses its near-term debt maturities by successfully refinancing its capital structure on reasonable terms while operating performance does not significantly deteriorate.
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