OREANDA-NEWS. S&P Global Ratings today affirmed its 'BB+' corporate credit rating on Rockford, Mich.-based Wolverine World Wide Inc. and revised the outlook to negative from stable.

At the same time, we affirmed our 'BBB' issue-level rating on the company's first-lien credit facilities and assigned our 'BB+' rating to the proposed senior unsecured notes. The recovery rating on the first-lien facilities is unchanged at '1', indicating our expectation of very high (90% to 100%) recovery in the event of a payment default, while the assigned recovery rating for the proposed senior unsecured notes is '4', indicating our expectation of average (30% to 50%, at the lower half of the range) recovery in the event of payment default. Concurrently, we assigned our 'BBB' issue-level and '1' recovery rating on the incremental term loan A-1.

We estimate the company's adjusted debt was approximately $960 million as of June 30, 2016, which includes our adjustment for operating leases.

"The revision of the outlook on Wolverine World Wide to negative from stable reflects the possibility that Wolverine may not restore credit metrics and cash flow in line with our base-case forecast should the operating environment continue to weaken in the second-half of 2016," said S&P Global Ratings credit analyst Peter Deluca. "The company has commenced a restructuring program that should result in margin expansion; however, it is too soon to determine if it will be successful and we expect the retail environment to remain difficult."

The ratings reflect Wolverine's strong market position and diversified client base as well as its narrow business focus and participation in fragmented and highly competitive business segments. We believe Wolverine's market position remains relatively strong as one of the largest footwear companies, with significant brand recognition, scale of operations, an international footprint. This is supported by the company's strong marketing and sales effort, good niche positions in the U. S. footwear market, meaningful scale of operations (with $2.6 billion in revenue), and portfolio of well-known footwear brands. However, the business continues to be narrowly focused in the casual footwear sector and only has modest geographic diversification, given that it generates about 25% of revenue, representing about 46% of pairs sold, outside of North America. Moreover, the company participates in the highly competitive footwear sector, which is vulnerable to fashion risk and economic cycles.

S&P Global Ratings could downgrade Wolverine should debt-to-EBITDA leverage not return to below 3x by the time the company reports its operating results for the year ended Dec. 31, 2016. Alternatively, we could revise the rating outlook to stable over the next year if Wolverine's restructuring initiatives prove successful, leading to restored revenue, profit, and cash flow growth such that the company sustains debt-to-EBITDA below 3x. We estimate it would need to sustain EBITDA above $350 million (assuming current debt) for this to occur.