S&P downgrades Gabe’s

S&P said it downgraded its ratings on Gabe’s (Mountaineer Merger Corp.) and its senior secured debt to B- from B. Though the 3 recovery rating is unchanged, the agency revised its rounded estimate for recovery to 50% from 60% to reflect the incremental priority borrowings associated with the upsizing of the asset-based lending facility.

“The company's recent operating performance has been weaker than we anticipated, and the timing of a recovery is uncertain due to ongoing cost pressures and softness in consumer spending. Although Gabe's reported sequential improvement in comparable store sales through the fourth quarter of fiscal 2022 (ended Jan. 28, 2023), the company's performance was materially below our expectations. Fiscal 2022 revenue declined 8.5% and S&P Global Ratings-adjusted EBITDA margins declined more than 200 basis points,” the agency said in a press release.

S&P said it estimates Gabe’s adjusted leverage will be above 5x with increased sustained revolving borrowings and limited FOCF over the next 12 months. “We expect continued negative FOCF in 2023 will lead to higher sustained revolver borrowings.”

The outlook is negative.

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