S&P gives B to Golf Town Canada

Standard & Poor's said it assigned a B long-term corporate credit rating and stable outlook to Golf Town Canada Inc. and Major Merger Sub Inc.

The agency also assigned a B issue-level rating and 4 recovery rating to the company's proposed C$150 million senior secured second-lien notes.

Golfsmith International Holdings Inc. is expected to succeed Major Merger Sub as issuer upon completion of its proposed acquisition by Golf Town.

Golf Town's subsidiary, Golf Town USA Holdings Inc., agreed to acquire Golfsmith for about US$109 million in cash plus assumed liabilities in a transaction the companies expect to close in July, according to the agency. After that, Golf Town and Golfsmith will be indirectly majority-owned by Omers Administration Corp. (AAA/stable/A-1+), the pension system for Ontario's municipal employees, with the remainder held by current and former members of management.

"The ratings on the entity comprising the combined Golf Town and Golfsmith reflect what we consider its weak business risk profile, characterized by its exposure to the fragmented and discretionary golf specialty retail market, historically thin EBITDA margins and low returns on capital, and an aggressive financial risk profile with high debt leverage," S&P analyst Donald Marleau said in a statement.

"These weaknesses are offset somewhat, we believe, by the company's solid share of the golf retail segment in Canada, which we expect will contribute steady cash flow to support its higher debt-service requirements and growth plans in the U.S.," Marleau added.

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