Affinity Faces Expansion Risks, High Leverage

Affinity Group Holding has relatively high lease-adjusted leverage and faces potential business risks associated with the expansion of its Camping World store chain. The company is already operating on the edge of its rating's category and its new $175 million credit facility will bring the company's lease adjusted leverage up to 4.75 times, according to Moody's Investors Service. "Typically we like to see leverage come down over time," explained Dominic Ward, senior associate analyst at Moody's. The new credit, which has been assigned a Ba2 rating, will retire Affinity's existing credit and a portion of notes but the company is still increasing its debt by roughly $18 million.

Moody's anticipates potential business risks as the company expands its chain of recreational vehicle product stores called Camping World. "We have been very comfortable with the ratings on this company because it's a very stable business," said Ward. But he noted there are costs associated with a rapid expansion. Moody's wants to see the company handle the changes appropriately, he added. The rating also incorporates Affinity's modest free cash flow available to pay down debt and the company's willingness to re-lever its balance sheet to make distributions to its shareholders. Approximately $13.7 million of the transaction has been tagged to repurchase stock from the company's major shareholder.

But Moody's does anticipate that Affinity will be able to grow its cash flow into its balance sheet over the next 12 to 24 months. Also supporting the ratings are Affinity's strong leadership position in the direct marketing of goods and services to the recreation vehicle space and the company's history of stability. Mark Boggess, Affinity's senior v.p. and cfo, did not return calls by press time.