Liquidity Ratings

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					Moody‟s 2002 Corporate Finance
        Credit Outlook
       Investor Briefing


       The Marriott Marquis
            New York
        January 15, 2002

                                 1
Liquidity Ratings



Michael Rowan, MD
 Leverage Finance



                    2
             Market Benefits

•   Basis for differentiating issuers
•   Deconstruction of established ratings
•   Short term rating scale for speculative
    grade/non-prime issuers
•   Independent opinion on a core fundamental
    credit issue


                                                3
 What do we mean by “Deconstruction “?


EXPECTED        PROBABILTY       SEVERITY OF
CREDIT LOSS =   OF DEFAULT   X   LOSS IN DEFAULT




                 LIQUIDITY




                                                   4
    What Is A LIQUIDITY RATING?


Moody‟s Liquidity ratings are opinions of an
issuer‟s relative ability to generate cash from
internal resources and the availability of
external sources of committed financing, in
relation to its cash obligations over the coming
12 months.




                                                   5
Rating Scale

    L-1
    L-2
    L-3
    L-4


               6
                       L-1

Issuers rated L-1 possess good liquidity:
•   Highly likely to meet their obligations
    through internal resources
•   Do not rely on external sources of committed
    financing
•   Are expected to maintain orderly access to
    committed financing

                                                   7
                    L-2

Issuers rated L-2 possess moderate
liquidity:
• Are likely to meet their obligations through
   internal resources
• May rely on external sources of committed
   financing
• The issuer‟s ability to access committed
   sources of financing is highly likely based
   on Moody‟s evaluation of near term
   covenant compliance

                                                 8
                   L-3
Issuers rated L-3 possess adequate
liquidity:
• Are expected to rely on external sources of
   committed financing
• Moody‟s believes the company will be in
   compliance with covenants, but the cushion
   is modest
• The issuer may require covenant relief to
   maintain orderly access to funding lines


                                                9
                     L-4

Issuers rated L-4 possess weak liquidity:
• They rely on external sources of financing
• The availability of that financing is in Moody‟s
   opinion highly uncertain




                                                     10
         Analytical Considerations
•   Does the company generate free cash flow from
    operations before/after capex ?
•   Does the company have a liquidity facility that is
    largely undrawn or used primarily for seasonal
    purposes ?
•   What is the forecasted compliance with bank
    covenants ?
•   Are the company‟s assets unencumbered ?
•   Does the company have alternatives to raise cash –
    could sell a product line or assets- would that impact
    operations, or impair enterprise value ?

                                                             11
  What additional information does a
      liquidity rating provide ?

• Time horizon is shorter than a bond rating
• Independent opinion on a key default variable
• Issuer level opinion not tied to a single issue
• Provides a basis for differentiating among
  issuers with equivalent issue ratings



                                                    12
Liquidity Risk Assessments



     Roger B. Arner, MD
     Global Coordinator


                             13
  Important Market Developments
• Market turbulence -- Asia, LTCM, Enron
  underscore fallacy of unlimited market access

• Increased systemic risk, structural changes

• Liquidity squeeze -- General American,
  Mercury Finance, Xerox, Finova, Lucent,
  California utilities


                                                  14
Liquidity Remains A Primary Concern
 Events of the past eighteen months have drawn
 investors to those issuers with a demonstrated
 ability to exit confidence sensitive public
 markets in an orderly fashion.




                                                  15
     Moody‟s Announces LRA‟s
Liquidity Risk Assessments or LRA‟s

• Critical need for additional information
• Research driven response
• Focused on ability of an issuer to conduct orderly exit
  of confidence sensitive public markets.

These assessments are an important supplement to
  Moody‟s Short Term ratings



                                                            16
Moody‟s Short-term Ratings Reflect
•   Fundamental credit quality
•   Vulnerability to “shock risk”
•   Reliance on confidence sensitive (hot) funding
•   Quality & Adequacy of on-balance sheet liquidity
•   Quality & Adequacy of alternate liquidity

Credit and liquidity are substitutable, but only to a
  certain extent




                                                        17
 LRA‟s Supplement The ST Rating
• Important deconstruction of ST rating methodology
• Two step process highlighting
     - Qualitative evaluation
     - Qualitative assessment

LRA not intended to be modifier to ST rating




                                                      18
        Qualitative Evaluation

• Refined analytic approach based on
  published methodology

• Deliberately qualitative and not formulaic

• Highly transparent with issuers in framework
  and approach



                                                 19
        Qualitative Assessment
• Deconstruction of ST analysis highlights
     - Credit fundamentals
     - Stress scenario as lack of market access

• Assessment on continuum

• Published opinion citing details




                                                  20
        Key Points About LRA‟s
•   Extension of existing methodology
•   Ratings unlikely to change
•   Not intended as a rating modifier
•   Qualitative evaluation, assessment

Liquidity is not well understood as it is episodic




                                                     21
  Rating Committee
Superior Sporting Goods

Richard Stephan - Committee Chairperson
    MD, Chemicals/Healthcare/Paper

           Bruce Clark, SVP

          Diana Lee, VP/SCO

      Christophe Razaire, VP/SCO

        Kendra Smith, VP/SCO
                                          22
    Objectives of the Rating Committee
                  Process
•    Consistency of Rating System (A2 = A2 = A2)

•    Thoroughness, Fairness, and Balance

•    Responding to Needs of Investors (Timeliness)

•    Accuracy




                                                     23
                   Company Forecasts
                      1998    1999    2000    2001    2002    2003    2004
Income Statement

Superior
Sales Growth          3.0%     3.1%    3.0%   2.9%    0.0%     4.0%    5.0%
Margins              11.0%    11.0%   11.5%   9.5%    7.0%    11.0%   11.8%

SportsKraze
Sales Growth         14.0%    16.7%   14.3%   12.5%   0.0%    15.0%   14.0%
Margins              15.0%    15.0%   15.0%    5.0%   5.0%    14.0%   17.0%

Sales                 3,200   3,300   3,400   4,400   4,400   4,675   5,002
Operating Income        352     363     391     378     290     545     652
Net Income              170     173     191     148      91     262     336

Debt & Interest

Average Debt          1,200   1,300   1,300   2,000   2,000   1,900   1,800
Interest                 90      98      98     150     150     143     135




                                                                              24
                  Company Forecasts
                            1998    1999    2000    2001    2002    2003    2004
Cash Flow

Gross Cash Flow             320     323     341      398    341     512     586
Working Capital               0       0     (50)    (150)     0       0       0
  Cash From Operations      320     323     291      248    341     512     586

Capex                       (125)   (125)   (150)   (250)   (250)   (300)   (350)
Dividends                   (100)   (100)   (100)   (100)   (100)   (100)   (100)
 Free Cash Flow               95      98      41    (102)     (9)    112     136

Treasury Stock              (125)   (125)   (125)    (75)     0       0       0

Cash Generation
 (Borrowing Requirements)    (30)    (27)   (84)    (177)     (9)   112     136




                                                                                    25
           Company Forecasts

                     1998   1999   2000   2001   2002   2003   2004
Ratios

EBIT/Interest         3.9   3.7    4.0    2.5    1.9    3.8    4.8

Retained Cash Flow    220   223   241   298   241   412   486
  RCF/Debt           18.4% 17.1% 18.5% 14.9% 12.1% 21.7% 27.0%

EBITDA                502   513    541    653    565    820    927
  Debt/EBITDA         2.4   2.5    2.4    3.1    3.5    2.3    1.9




                                                                      26
              Adjustments
                  2002    2003    2004
Sensitivity

Superior
Margins
 SSG              7.0%    11.0%
 Moody's          6.5%     9.0%

SportsKraze
Sales Growth
 SSG               0.0%   15.0%
 Moody's          -5.6%   12.0%
Margins
 SSG                      14.0% 17.0%
 Moody's                  12.0% 15.0%

Cash Flow
Working Capital
 SSG                 0       0
 Moody's           (50)    (50)




                                         27
                SSG/Moody‟s Comparisons
                     1998    1999    2000    2001    2002      2003    2004

Operating Income
 SSG                 352     363     391     378     290       545     652
 Moody's             352     363     391     378     270       442     614

Free Cash Flow
  SSG                 95      98      41    (102)       (9)    112     136
  Moody's             95      98      41    (102)     (77)     (15)    101

Debt
 SSG                1200    1300    1300    2000    2000      1900    1800
 Moody's            1200    1300    1300    2000    2100      2100    2000

Interest Expense
  SSG                 90      98      98     150     150       143     135
  Moody's             90      98      98     150     158       158     150

EBIT/Interest
 SSG                  3.9     3.7     4.0     2.5      1.9      3.8     4.8
 Moody's              3.9     3.7     4.0     2.5      1.7      2.8     4.1

RCF/Debt
 SSG                18.4%   17.1%   18.5%   14.9%   12.1%     21.7%   27.0%
 Moody's            18.4%   17.1%   18.5%   14.9%   10.6%     15.9%   22.6%

Debt/EBITDA
 SSG                  2.4     2.5     2.4     3.1      3.5      2.3     1.9
 Moody's              2.4     2.5     2.4     3.1      3.9      2.9     2.3




                                                                              28
                     Peer Comparisons
                                                                                         Debt/
                                                                   Interest
                                              Revenues   Margins              RCF/Debt
                                                                   Coverage              EBITDA
Consumer Products - Baa3 Average                5,000    7.00%        3.6x      20%        2.8x

Superior Sporting Goods - Baa3
                                      *2003      5492     9.6%         2.8     15.9%        2.9
                                      *2002      4350     6.2%         1.7     10.6%        3.9
                                      *2001      4400     8.6%         2.5     14.9%        3.1
                                       2000      3400    11.5%         4.0     18.5%        2.4
                                       1999      3300    11.0%         3.5     17.1%        2.5

Outdoorsman: Ba2 Stable
                                      *2002      1400     6.1%         2.3     14.0%        3.1
                                      *2001      1400     6.0%         2.3     12.9%        3.1
                                       1999      1300     6.5%         2.5     13.0%        3.0

Luxury International: Baa3 Negative
                                      *2002      3000     7.2%         2.9     16.0%        3.2
                                      *2001      3100     7.2%         2.9     15.5%        3.0
                                       1999      2900     7.5%         3.4     16.0%        2.6

U.S. Recreation: Ba1 Stable
                                      *2002      2500     6.9%         2.9     14.9%        3.0
                                      *2001      2500     7.0%         2.7     14.7%        3.1
                                       1999      2400     6.9%         2.7     14.5%        3.0

Fonstab AG: Baa2 Stable
                                      *2002     6,000    12.5%         3.9     21.5%        2.4
                                      *2001      6200    12.4%         4.0     22.0%        2.3
                                       1999      6000    12.5%         3.6     21.0%        2.5
*Moody's Estimates




                                                                                                  29
Q&A



      30
    Objectives of the Rating Committee
                  Process
•    Consistency of Rating System (A2 = A2 = A2)

•    Thoroughness, Fairness, and Balance

•    Responding to Needs of Investors (Timeliness)

•    Accuracy




                                                     31
        Members of Committee
Lead Analyst – Extensive credit background but
               only 2 Years with Moody‟s

Team MD (or SVP) – Long relationship with SSG

Leveraged Finance Analyst – Crossover rating
                            placement

Retail/Consumer Goods Analyst - Industry expertise

Resorts/Leisure Analyst - Industry expertise

                                                     32
     Company Under Discussion
Superior Sporting Goods Inc.
    •Global manufacturer of sporting goods with presence in
     recreation

    •Revenue - $3.5 billion

    •Strong franchise - 30 year history

    •Rated Baa3 since 1992

    •Moody‟s confirmed ratings after $500 million acquisition of
     SportsKraze USA

    •Fictitious company - any resemblance to any other
     company, either currently in existence or not, is purely
     coincidental

                                                                   33
   Sequence of Recent Events
Sept. 2000: Confirmed Baa3; changed Outlook to
            Negative

Sept. 1, 2001: Rating placed on review for downgrade.

Discussion of Agenda/Key Factors in Review

Oct. 10, 2001: Met with issuer
               Review of Presentation
               Communication of Critical Issues

Oct. 25, 2001: Rating Committee Meets

                                                        34
Current Ratings and Capital Structure

 Capital Resources                              Current
     Ratings

 $1,000 Mil. Public Debt                        Baa3

 $600 Mil. in 5-Year Acquisition-Related Debt   Baa3

 $400 Mil Unused Revolving Credit Facility      Baa3

 $400 Mil. ABS Facility                         Aa

 $1,900 Mil. Common Equity




                                                          35
                     Recommendation
Ratings                                                Actions

Senior Implied Rating:                      Assign Ba1 - Stable

Senior Unsecured Rating: Lower Baa3 to Ba1 - Stable

Bank Credit Facility:                       Lower Baa3 to Ba1 - Stable




Note: No Differentiation between Senior Implied and Senior Unsecured



                                                                         36
                Fundamentals
•   Positives
    •Highly competitive business position
    •Strong/well-managed brands
    •Extensive product and geographic diversification
    •Solid position with retailers
    •Competitive level of operating efficiency

•   Negatives
    •Fraud at SportsKraze
    •Markets for SSG are slowing
    •Potential pushback of inventory


                                                        37
    Strong & Well-Managed Brands
•   Leading market share positions

•   Consumer survey data – brand recognition

•   Marketing/Advertising spend

•   Intense, deep-rooted focus on brand
    management

•   Strong returns, equity value, market transaction
    value of brands
                                                       38
    Good Position With Retailers
•   Company focus

•   Confirmation from Moody‟s retail analyst

         Retailers make good margins




                                               39
      SportsKraze Acquisition
Fully discussed prior to Sept. 2000

Rationale for transaction
    Fit with core image - sports, health, branding, etc.
    Vehicle for growth

Moody‟s view
  Moderately high price
  Stretching scope of core strategy
  Growing investment requirements

                                                       40
      SportsKraze Acquisition
2000 Proforma

                SSG             SportsKraze
Revenues        $3,400 Mil.     $800
                81%             19%

Op. Income      $391 Mil.       $120 Mil.
                77%             23%

Moody‟s changed Outlook to Negative

                                              41
SportsKraze‟s Current Problems
Sellers discounted extended memberships

Program was not disclosed

SSG discovered and disclosed the problem
  Redoing forecasts
  „01 and „02 performance will be below
  expectations

Business has been disrupted - some customer
dissatisfaction
                                              42
     Management Credibility
•   MD, Moody‟s relationship and company
    emphasis

•   Good dialogue Communication of strategy

•   Delivering results

•   SportsKraze – Fully discussed in advance

•   Commitment to build financial flexibility
     – Reduce debt/ Acquisitions off until 2003
                                                  43
        Management Change
Chairman and CEO to Retire at end of 2002:

   Built portfolio of brands

   Forged company‟s brand culture

   Stayed ahead of curve on international
   expansion and cost control




                                             44
Track Record - Operating Efficiency

•   Working capital management

•   Offshore manufacturing

•   Operating margins

•   Good focus on cost without sacrificing critical
    capex or brand-support investments




                                                      45
Current Debt Protection Measures

•   Historic ratios consistent with Ba1

•   Financial Strategy: SSG consistently ran near
    the edge - EVA benefit

•   Concerns/risks offset by business strengths

•   Slowing economies in U.S. and Europe are
    depressing sales and margins of SSG



                                                    46
            Other Concerns
Would have violated covenants in $800 Mil.
Revolver

Banks wanted security, but negative pledge
blocked

Facility split - $400 Mil. Revolver & $400 Mil.
Receivable sale. Ample covenant headroom

Debt protection measures will be inconsistent with
Baa3 until 2003, at earliest
                                                     47
 SSG Assumptions and Forecasts
Market demand by product and geographic region

Process/strategy for fixing SportsKraze

Pricing environment

Cost expectations

Working capital and capex

Margins
                                                 48
  Financial Analysis Conclusion
Debt protection measures marginal for Baa3

Performance in „01 and „02 will be consistent with Ba2

If operations are as SSG plans, performance is marginal for
Baa3

There is no cushion for downside deviation from plan

More aggressive financial policies in „03 and beyond?




                                                              49
       Security Position of Banks
Banks wanted security

Will have $400 million in receivables

   Total debt of         $2,000 Mil.
   Total assets of       $4,500 Mil.
   Equity of             $1,900 Mil.
   Net tangible assets   $1,500 Mil.

Security is a negative, but not overwhelming.


                                                50
                 Notching Issues

Senior Implied

    Overall enterprise credit quality

    Ignores security, structural subordination

    Cases of security:
             Notch secured up from senior implied
             Notch unsecured down from senior implied




                                                        51
             Rating Options

Senior implied & senior unsecured now Baa3

a) Confirm Senior Unsecured @ Baa3 - Negative

b) Assign Senior Implied Baa3 - Stable
   Lower Senior Unsecured to Ba1 - Stable
   (notch)

b) Assign Senior Implied Ba1- Stable
   Lower Senior Unsecured to Ba1- Stable

                                                52
        Liquidity & Debt Maturity

•   Covenant violation caused problem

•   New covenants provide a lot of head-
    room

•   $400 Revolver affords ample capacity for:
     – Refunding of $300 Mil. bond maturity in June „02
     – Unforeseen events ($100 Mil.)



                                                          53
             Recommendation
Assign Senior Implied of Ba1 - Stable
Lower Senior Unsecured to Ba1- Stable

Rationale:
•    Ba2 financial performance for „01 and „02
•    Marginal Baa3 performance in „03
•    Good possibility Ba1 performance until „04
•    EPS growth will pressure financial strategy
•    Covenant violation and bank security
•    Permanently running on the edge - tolerance for
     financial risk
•    Chairman/CEO retirement

                                                       54
Appendix




           55
         Product Diversification
Swimwear
   Ski
     Golf equipment
           Tennis
                Footwear
                     Bicycles
                           Outdoor/camping
                              Exercise equipment
                                      Skating


     Health, Fun, Youth, Quality, Excitement
                                                   56
Geographic Diversification




                             57
Trends For Syndicated
     Bank Loans




    Dan Gates, SVP


                        58
 New Issuance Collapsed In
The Third and Fourth Quarters




                                59
Moody‟s Loan Ratings Continue To
 Grow In A Weak Market In 2001




                                   60
Comparative Rating Coverage




                              61
Credit Availability Problems Are Very Different For
          Investment Grade and Non-IG

• Investment Grade - Strong market access, but a
  shrinking pro-rata investor base and increased
  relationship selectivity are making it more difficult to
  syndicate revolving credit facilities.

• Non-Investment Grade - Market access is limited for
  lower rated issuers. Tighter credit standards reflect the
  elevated default rate. Standards may ease after
  defaults peak in the 1st H of 2002.



                                                              62
    The Investor Shortage in IG:
• On-going consolidation of the banking sector
• Retreat by many foreign banks
• Greater focus on ROE
• Increased use of portfolio tools for balance
  sheet management
• Revolving credits are under priced but
  ancillary business can only be spread so far
• Unfunded facilities are not well suited to most
  non-bank investors

                                                    63
Changing Investor Base For IG
       Credit Facilities




                                64
The Number Of Active Providers
Of Pro-Rata Facilities Continues
           To Shrink

       Active Investors in
       Syndicated Loans

      1996          130
       2001          60


                                   65
Changing Investor Base For Non-
   Investment Grade Loans




                                  66
The Growth Of CDO‟s




                      67
 Trends in Loan Structures
• Less stretch in financial
  structures and projections
• Better collateral coverage/control
• Easier assignments, more call
  protection, Libor floors
• More active trading


                                       68
Trading of Loans Has Grown; And The
   Distressed Share of Trading Has
              Increased

   1999        2000              2001
    11%          24%               35%




                       Source: LPC, Moody’s
                                              69
            Market Outlook
• Investment grade loan market looks fairly
  strong and will be “refinancing” driven in 2002
• Forward calendar for leveraged loans is quite
  weak, after 30% volume decline last year
• Leveraged loans fell below 25% of total
  syndications in 2001, first time since 1997
• Non-investment grade issuer default rate of
  9% is highest in 8 years and nearing a peak



                                                    70
Average Recoveries On Defaulted
       Loans Are Falling
Recovery on Defaulted Sr. Secured Loans



                                          100%


                                          80%

                                                    1999
                                                                                Long Term
                                                                               Average 69%
                                          60%                 2000
                                                                        2001

                                          40%


                                          20%


                                           0%
                                                 1999      2000      2001

                                                                                             71
History Suggests That Credit Will Not
   Ease Until After Defaults Peak




                                        72
Amid The Gloom, The Stage is Being Set
      For Eventual Improvement
 • Noticeably tighter lending standards since the
   3rd quarter of 2000
 • Leveraged loans structured with less
   leverage and better collateral coverage
 • Much more market skepticism to projected
   operational and financial improvements or
   merger synergies
   These factors suggest that new loans should
   have somewhat higher credit quality
                                                    73
New Syndications Exhibit Higher Ratings Due to
         Tighter Lending Standards
Higher Ratings On New Loans in 2001 Compared to Prior Years




                                                              74

				
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