S&P slashes HDT Holdco

S&P said it downgraded its ratings on HDT Holdco Inc. and its first-lien term loan to CCC from B.

“The company reported substantial negative operating cash flow during fiscal year 2022 (ended June 30) and we forecast it will generate a deficit of between $5 million and $10 million in fiscal year 2023. We also forecast modest capital expenditure (capex) of between $1.5 million and $3 million in 2023. We expect HDT will generate negative free operating cash flow (FOCF) of between $7 million and $12 million for fiscal year 2023, which will improve moderately in fiscal year 2024 to between a use of $5 million and an inflow of $2 million as interest expense remains a material drag, given our expectation that the Fed will not lower base rates until at least 2025,” S&P said in a press release.

The agency noted HDT can draw up to $1 million from its bank revolving credit facility without triggering its 6x maximum leverage covenant. Additionally, HDT's sponsor has provided it with a $20 million revolver secured by inventory that currently has about $6 million available. The company also has about $13.4 million of balance sheet cash.

The outlook is negative.

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