Moody’s Investor Service and S&P Global Ratings both downgraded Florida-based Rising Tide Holdings Inc. — doing business as West Marine — following a recapitalization that will provide the company an aggregate $150 million of additional capital heading into the summer boating season.

West Marine announced the recapitalization on Feb. 28, stating in a press release, “The transaction provides West Marine with substantial liquidity, strengthens its financial outlook, and positions the company for long-term success.”

That same day, S&P downgraded Rising Tide Holdings to SD, which means selective default. “We view the transaction as tantamount to a default because creditors will receive less value than originally promised, and we view the exchange as distressed,” S&P wrote.

One day later, Moody’s downgraded Rising Tide Holdings, stating that “if the transaction is consummated as outlined, it will constitute a distressed exchange, which is an event of default under Moody’s definition.”

The recapitalization came two months after West Marine replaced CEO Eric Kufel, who had been appointed in August 2021, with the company’s new CEO, Chuck Rubin, who started on the job in December.

West Marine representatives provided the following statement to Trade Only Today:

West Marine has been a leading provider in the marine aftermarket for over 50 years. West Marine is positioned for long-term stability and growth and aspires to continue its legacy of providing the boating community with its product and service needs and a superior customer omnichannel experience.

West Marine is poised to capitalize on the financial strength brought through the recapitalization transaction through its new leadership team led by CEO Chuck Rubin, a proven retail industry leader of Fortune 500 and category-leading brands. Rubin, who most recently served as the chief executive officer of Michael’s Stores, has an exemplary track record of delivering results in marketing, merchandising, digital and store operations and strategy.

Rubin is joined by industry veteran Jim Grady as CFO, who was formerly the CFO of Pet Valu Holdings Ltd., the leading Canadian specialty retailer of pet food and pet-related supplies. Grady has been instrumental in driving revenue growth in successful turnaround situations and for building, developing and leading high-impact teams.

Rubin and Grady will serve alongside other recent additions to the company’s executive management team, including Stacey Renfro as chief commercial officer and Paulee Day as chief legal and human resources officer. Renfro has a proven track record for driving revenue growth through a brand architecture that creates seamless customer experiences across selling channels. Day is a long-time marine industry executive with a proven track record for driving business results.

Matthew Christy, associate director for S&P Global Ratings, told Trade Only Today that West Marine had interest statements that were due in February, but the company didn’t have enough liquidity to make the payments. The recapitalization did several things, he said, including infusing the company with cash and changing the existing term loans while creating different agreements with different terms. Overall, the move was a way to “right-size” the capital structure for the next 12 to 24 months, giving the company “breathing room” to continue operating, he said.

“The pace of this caught us off guard,” Christy said. “Other companies have gone through bankruptcies and exchanges, and there tends to be a lead time of a year or more where we see this deterioration. Here, it happened within a matter of nine months. It was a pretty rapid decline, and from one point of view, there were issues with the supply chain. That is not just a West Marine issue. We saw a lot of volatility with a lot of companies. At the same time, we have this economic slowdown that hurt their sales. All of this culminated very quickly into a need for them to restructure their debt.”

Moody’s, in its statement, said “a turnaround in performance is paramount in order to improve West Marine’s free cash flow.”

Christy said he does not anticipate closures of any West Marine stores. Instead, he said, the recapitalization should allow the company to increase inventory in its stores ahead of the peak boating season that starts in the next few months.

He also stressed that a selective default rating at S&P Global is different from traditional default. With a traditional default, a company has failed to meet its contractual obligations on things such as interest and debt payments. With selective default, as happened in this case, the company made a move that “likely or potentially staved off a traditional default.”

Christy also said S&P Global intends to re-evaluate its rating in the short term, but he could not give a more definitive timeline for that action.