TOMS Shoes, LLC

About

“TOMS Shoes, LLC (“TOMS”) is a designer, retailer and wholesaler primarily of footwear under the TOMS brand. TOMS’ commitment to donating one free product for each one sold is a cornerstone of its business strategy. The company’s products are sold globally in the wholesale channel and directly to consumers primarily through ecommerce. Revenue for the twelve months ended March 31, 2016 was about $416 million. The company was founded by Mr. Blake Mycoskie in 2006 and Bain Capital acquired a 50% ownership stake in October 2014.” From Moody’s.

BDC Credit Reporter View

5/27/2019: Tom’s Shoes is getting by but with a Caa3 rating from Moody’s and a 2020 debt deadline coming up, it’s worth getting worried. The two BDCs with exposure – MAIN and sister fund HMS Income – are sitting at the top of the capital structure )but potentially behind an asset based lender) but could still lose money in a restructuring or bankruptcy. The current discount is (20%) but has been twice as high, so a wide range of loss probabilities exist. We still have a CCR 3 rating, on the possibility that all could be all right. We’ll be finding out within the 12 months.

Earlier Note: TOMS Shoes was acquired from its entrepreneurial founders back in 2014 by Bain Capital. The Company is closely-held but the debt for the financing was publicly rated, so periodic credit information is available. We know that the Company and its 2020 First Lien Secured Loan were downgraded to Caa (Speculative rating) in July 2016. A new management team has been installed by the Private Equity owners because business performance has weakened since the acquisition, but Moody’s is concerned that the increases in sales and EBITDA necessary to improve the balance sheet may not occur. As of the IQ 2016 results, net leverage remained very high at 9.4x, although liquidity was adequate.

There are 3 BDCs with exposure [PFLT subsequently sold out] : all in the First Lien debt. Based on valuation, the Company has been on Watch List since IVQ 2015. However in the IIIQ 2016 the BDCs all reduced the discount at which the debt was marked to a median of -20%. In late November 23016,though, the debt was trading at a -35% discount, indicating the Credit Trend in the IVQ 2016 is likely to be Down. We have a Corporate Credit Rating of 3, reflecting optimism that Bain and the new management may be able to improve the Company’s financial performance. However, we have a suspicion that a downgrade may yet occur in the next few months.