Rating Action: Moody’s changes outlook on Amer Sports’ B3 ratings to positiveGlobal Credit Research – 14 Jan 2022Madrid, January 14, 2022 — Moody’s Investors Service (“Moody’s”) has today changed to positive from stable the outlook on the ratings of Amer Sports Holding 1 Oy’s (Amer Sports), a global sporting goods company. Concurrently, Moody’s has affirmed the company’s B3 corporate family rating (CFR) and its B3-PD probability of default rating (PDR). Moody’s has also affirmed the B3 ratings on the E1,700 million guaranteed senior secured term loan B (TLB) due 2026 and the E315 million guaranteed senior secured revolving credit facility (RCF) due 2025, both borrowed by Amer Sports’ subsidiary, Amer Sports Holding Oy.”The outlook change to positive reflects Amer Sports’ sustained strong operating performance, which will lead to a faster deleveraging profile than previously anticipated, with Moody’s adjusted gross leverage ratio reducing to below 6.5x over the next 12-18 months,” says Pilar Anduiza, Moody’s lead analyst for Amer Sports.A full list of affected ratings can be found at the end of this press release.RATINGS RATIONALEAmer Sports’ operating performance in 2021 has exceeded Moody’s expectations at the beginning of the year. Consumer demand for sports apparel, footwear and individual ball sports equipment has proven to be stronger than expected across all segments, driving revenue growth of 29% YTD September 2021. The Chinese market, which is predominantly direct-to-consumer (D2C), continued to outperform other segments reaching an estimated E300 million in revenues in 2021, compared with E190 million in 2019.In 2021, the company voluntarily prepaid E100 million of its TLB and E162 million drawings under the RCF in 2021. As a result, Amer Sports’ financial leverage, measured as Moody’s adjusted gross debt to EBITDA, improved to around 7.2x in 2021 from 10x in 2020.Moody’s expects the company’s sales growth to continue to be strong in 2022. Growth will come mainly from the expansion of the retail network in China, investment in the Salomon brand and the rapid development of the Arc’teryx brand. However, the rating agency notes that the company’s expansion plan entails execution risks and requires significant marketing, capital spending and working capital utilization, which will drive negative FCF generation until at least 2023. Additionally, challenges in the global supply chain and uncertainty regarding the evolution of the coronavirus pandemic remain key risks to the company’s growth prospects for next year.Based on Moody’s forecasts, Amer Sports’ gross leverage in 2022 will trend towards 6.5x. However, profitability in 2022 will likely remain affected by the current inflationary environment. The company’s Moody’s adjusted EBIT margin will remain modest as a result of increased commodity prices and higher logistic costs being partly offset by channel mix, price increases and cost saving initiatives.Amer Sports’ B3 CFR continues to be supported by (1) its large scale and leading market positions, underpinned by a large and diversified portfolio of globally recognised brands; (2) its broad diversification across sports segments and geographies; (3) the favourable long-term demand dynamics of the sporting goods market, with additional growth potential from the company’s expansion into the D2C channel of the Chinese outdoor apparel market; and (4) the strategic guidance and potential financial support from its shareholders ANTA Sports Products Limited (ANTA Sports), FountainVest Partners Co Ltd, Mr. Chip Wilson, and Tencent Holdings Limited.The B3 rating is constrained by (1) the exposure to discretionary consumer spending, which creates earnings volatility; (2) the significant capital spending and marketing expenses required to implement its expansion strategy, which will exert pressure on margins; (3) the relatively weak EBIT-to-interest cover ratio of around 1x; and (4) the expectation that the company will generate negative free cash flow in the next two years to sustain the retail expansion.LIQUIDITYWith a fully undrawn E315 million RCF and E318 million of cash on balance sheet at September 2021, Amer Sports’ liquidity is adequate. Based on the rating agency’s forecasts, these liquidity sources will be sufficient to cover the company’s cash needs over the next 12-18 months, which include planned capex of around E150-E190 million annually (i.e. including around E60 million related to the lease adjustment), mainly to support the ambitious retail expansion plan in China.Amer Sports faces significant EBITDA and working capital seasonality, with the largest cash outflows in Q2 and Q3, respectively. The sustained capex plan, together with dividend payments to service the interest on the E3.3 billion shareholder loan and higher working capital requirements, will lead to a negative free cash flow generation in the range of E100 million – E150 million in 2022. FCF will improve from 2023 onwards to levels of around E50-70 million p.a.The company’s RCF contains a financial covenant of senior secured net leverage not exceeding 8.0x, tested when (1) the facility is used for more than 40% of its committed amount, and (2) the company’s cash balance is below a certain level. Given the reduction in the company’s net leverage and the ample cash balance, the rating agency expects Amer Sports to maintain sufficient capacity under this covenant.STRUCTURAL CONSIDERATIONSThe B3 ratings assigned to the E1,700 million guaranteed senior secured TLB due 2026 and the E315 million guaranteed senior secured RCF due 2025 are in line with the CFR, reflecting that these two instruments rank pari passu and represent substantially all of the company’s financial debt. The TLB and the RCF are secured by pledges over Amer Sports’ major brands, as well as shares, bank accounts and intragroup receivables, and are guaranteed by the group’s operating subsidiaries representing at least 80% of the consolidated EBITDA. The B3-PD probability of default rating assigned to Amer Sports reflects the assumption of a 50% family recovery rate, given the limited set of financial covenants comprising only a springing covenant on the RCF.RATIONALE FOR POSITIVE OUTLOOKThe positive outlook reflects Moody’s expectations that Amer Sports’ credit metrics will progressively improve over the next 12-18 months, on the back of strong demand primarily in China, as well as continued focus on cost savings, leading to Moody’s adjusted leverage trending towards 6.5x. The positive outlook also assumes that the company will maintain at least adequate liquidity and comfortable capacity under its financial covenant.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSPositive pressure on the ratings could materialise over time if the company demonstrates a consistent revenue and EBITDA recovery path, leading to (1) a reduction in financial leverage, measured as Moody’s adjusted gross debt to EBITDA trending towards 6.5x on a sustainable basis; (2) the generation of sustained positive free cash flows, and (3) the maintenance of a solid liquidity profile.The ratings could be downgraded if the company’s operating performance weakens or it engages in large debt-financed acquisitions that lead to an increase in leverage from current levels. Negative pressure on the rating could build up in case of a material deterioration in the company’s liquidity profile, as a result of negative free cash flow generation for a prolonged period of time, or reduced capacity under its financial covenant. LIST OF AFFECTED RATINGS Affirmations: ..Issuer: Amer Sports Holding 1 Oy…. Probability of Default Rating, Affirmed B3-PD…. LT Corporate Family Rating, Affirmed B3..Issuer: Amer Sports Holding Oy….BACKED Senior Secured Bank Credit Facility, Affirmed B3Outlook Actions:..Issuer: Amer Sports Holding 1 Oy….Outlook, Changed To Positive From Stable..Issuer: Amer Sports Holding Oy….Outlook, Changed To Positive From StablePRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Consumer Durables published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1276767. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.COMPANY PROFILEDomiciled in Helsinki, Finland, Amer Sports is a global sporting goods company, with sales in more than 30 countries across EMEA, the Americas and APAC. Focused on outdoor sports, its product offering includes apparel, footwear, winter sports equipment and other sports accessories. Amer Sports owns a portfolio of globally recognised brands such as Arc’teryx Salomon, Wilson, Peak Performance and Atomic, encompassing a broad range of sports, including alpine skiing, running, tennis, baseball, American football, diving, hiking and golf. For the LTM ended September 2021, Amer Sports generated revenues of E2.5 billion and company-adjusted EBITDA, i.e. excluding non-recurring items and IFRS 16, of E299 million.REGULATORY DISCLOSURESFor 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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. Maria del Pilar Anduiza de la Hera Analyst Corporate Finance Group Moody’s Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Ivan Palacios Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody’s Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY’S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY’S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody’s Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody’s Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
Amer Sports Holding 1 Oy — Moody’s changes outlook on Amer Sports’ B3 ratings to positive
