Why Sports Authority May Be Closer to Going Bankrupt

January 17, 2016, 10:38 PM UTC
Company Signs
Sports Authority store, Sunnyvale, California
Photograph by Karen Desjardin — Moment Editorial/Getty Images

Sports Authority, the U.S. sporting goods retailer with more than 450 stores, told Reuters on Friday it would miss a key debt interest payment, a decision that could move it closer to bankruptcy.

The woes of Englewood, Colorado-based Sports Authority, owned by private equity firm Leonard Green & Partners LP, underscore the fierce competition retailers face from industry giants Wal-Mart Stores Inc and Amazon.com Inc.

“Although Sports Authority currently has sufficient liquidity to conduct its business operations and to make the current interest payment on the subordinated mezzanine debt, after consultation with our senior lenders we elected not to make the interest payment while we continue these discussions,” the company said in an emailed statement.

Should the missed $20 million coupon payment trigger cross-defaults across the rest of the company’s debt, Sports Authority could become the U.S. retail sector’s first major bankruptcy of 2016.

Sports Authority said in its statement it was engaged in discussions with its various senior lender groups to explore options for strengthening its balance sheet. The company said Rothschild is its outside financial adviser.

Sports Authority has struggled with inconsistent operating performance over the past four-plus years, according to a research note from Moody’s Investors Service.

The seller of sporting goods, apparel and accessories has also been trying to cope with the impact of adverse weather and poor management. It has about $1 billion in debt, according to a source who asked not to be identified discussing confidential information.

Leonard Green & Partners did not respond to a request for comment.

Sports Authority has been working on an operational improvement plan, which includes store re-models, improved product stock levels and e-commerce initiatives, according to Moody’s.

The credit ratings agency had warned that if those initiatives are not successful, Sports Authority could have trouble refinancing its capital structure.

Revenue for the company approached $2.7 billion for the 12 months that ended May 2, according to Moody’s.

Leonard Green & Partners LP took Sports Authority private almost a decade ago for $1.3 billion, including debt.