AS Adventure FY’22 Earnings Smash Budget Again, Set Stage for Successful Post Restructuring Exit; Lenders Who Stayed the Course Set to Make 115% Recovery

Under the terms of AS Adventure’s 2021 balance sheet restructuring, sponsor PAI is required to launch a sale of the company by July 1, 2023. The Benelux-based outdoor sports clothing and equipment retailer maintained its upward earnings trajectory during 2022, beating budget by some distance and driving down net leverage to just 1.61x. With the group likely to fetch a high single digit enterprise value multiple, lenders are set to make recoveries well in excess of their original par loan investment given that part of the equity is stapled to the re-instated loans, sources said.

Sales reached €592.5 million in 2022, which was well ahead of the €561.9 million budgeted and significantly up on the €525.3 million AS Adventure generated during 2021. Recurring EBITDA grew to €53.5 million, far outstripping the €37.5 million the group had budgeted and up on the €51.7 million it had generated in the prior year.

While the year-over-year EBITDA increase looks modest, AS Adventure had benefited from significant one-off support measures related to the pandemic during 2020, such as rent rebates and furlough payments, which had flowed directly into the bottom line. When stripping these out, underlying EBITDA increased significantly again during 2022, and is now some 30% above the pre-Covid 2019 level of €40.8 million, sources noted.

That helped AS Adventure generate some €12.9 million of free cash flow in 2022, taking its year-end cash balance to €112.4 million. The group’s debt consists of its €199 million reinstated term loan B, leaving it with just €86.6 million of net debt and 1.61x net leverage as of December 2022.

As part of the restructuring some €199 million of AS Adventure’s €286.5 million gross debt (comprising its term loan B and RCF draws) was reinstated, paying a 5% cash margin with a two-year PIK toggle option (against a 50 bps cash premium) and maturing in five years. Around 50% of AS Adventure’s equity was stapled to the reinstated loans, however once the nominal value of the original debt is repaid in full, lenders will only receive 30% of the remaining proceeds.

Based on valuations of comparable sports retailers, AS Adventure could fetch a 7x to 8x multiple, sources said, which is in line with Reorg’s analysis of trading comparables.
 
At the mid-point, that would imply a €400 million plus EV, resulting in around €313 million of equity following the repayment of net debt.

According to the terms of the restructuring, the equity proceeds would be split 50:50 between the lenders and PAI up until the full original nominal debt has been repaid, with the remaining proceeds to be split 30:70 between the lenders and the sponsor.

That means the first €173 million of equity would be shared equally between the lenders and the sponsor, providing lenders with full recovery of their principal. The remaining €141 million would then be split with €42 million going to the lenders and €98 million to PAI. Therefore, lenders would have made a total of €328.5 million of recoveries on their original €286.5 million of principal, implying a roughly 115% recovery rate excluding interest.

AS Adventure’s capital structure as of December 2022 is below:
 
PAI declined to comment.

- Robert Schach, Shenda Xu, Beatrice Mavroleon