Deutsche Bank's $350 million loan backing the exit financing for AMF Bowling Worldwide, launched into the market two weeks ago, has been given a B1 rating by Moody's Investors Service, reflecting the significant reduction in leverage afforded by its reorganization plan. Approximately $1.2 billion of debt is being replaced with $450 million of funded debt, including $300 million of the bank debt and $150 million of notes due 2008 [assigned a B3 rating]. "Essentially hundreds of millions of debt has been forgiven," said Russell Gorman, v.p. senior analyst at Moody's.
"The reason AMF picked up the debt is because they went on an acquisition spree and did not get the expected synergies," Gorman added. But, management is now focusing on internal execution and cash flow generation and has implemented a number of initiatives. These include new marketing campaigns, upgraded facilities including Xtreme bowling, and new compensation and training for center managers. Additionally, AMF has put in place several expense and operational control systems.
There is still moderately high leverage and relatively low cash flow-to-debt for America's largest bowling center operator, noted Gorman. But Moody's feels fairly good about the stability of the business, he said. AMF has achieved consistent revenue and EBITDA through a slow migration from league bowling to the more profitable open bowling. However, the property, plant, and equipment that comprise the vast majority of AMF's pro forma assets would have problematic liquidation values in a distress scenario. "The facilities are more useful as a bowling alley than converting it," Gorman explained.