Late last week, privately owned Sports Authority skipped a $21 million interest payment, as it tries to work with lenders on ways to address its debt maturities that begin in May 2017, according to Moody's. It has a 30-day grace period to complete the missed payment; otherwise, it will trigger a default.
"We have been working with Rothschild, our outside financial advisor, for the past several months to evaluate our capital structure, and we have been engaged in discussions with our various senior lender groups to explore options for strengthening our balance sheet," a Sports Authority spokesperson said in a statement.
"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."
Moody's on Wednesday downgraded Sports Authority's $300 million in debt, and lowered its outlook on the company to "negative" from "stable." It cited a "high probability of default" and the difficulty it may have trying to refinance its debt without restructuring or impairing its lenders.
The ratings agency estimates that the company rang up $2.6 billion in sales during the 12 months ended in October. That compares to the $2.5 billion in revenues it pulled in prior to being taken private by Leonard Green & Partners in 2006. Meanwhile, Thomson Reuters estimates expect Dick's to report $7.3 in annual sales for 2015, compared to $2.6 billion in 2005.
According to Moody's, Sports Authority has been muddling through years of "inconsistent" operating performance due to weak execution, adverse weather, heavy promotional activity and strong competition. It's been working to improve its financials by closing underperforming stores, but its margins have been pressured by discounts and higher shipping costs from online shopping.
In an interview with CNBC last summer, Stephen Binkley, an executive vice president at Sports Authority, said the company has "really put the pedal down" on private label brands, and was expanding its plus-size business. The company was also in the process of updating its stores with a more "intuitive" layout, including dedicated shops for yoga or golf.
Neither Leonard Green nor Dick's responded to CNBC's requests for comment.