Citing the impact on school closings, social distancing and restrictions on large gatherings and sporting events, Standard & Poors last week lowered the debt ratings of Varsity Brands Co., the parent of BSN Sports, Varsity Spirit and Herff Jones.

“We believe the revenue and profit of U.S.–based Varsity Brands Holding Co. Inc. and Hercules Achievement Inc., collectively known as Varsity Brands, could decline materially due to its participation in the school affinity market,” S&P said in a statement.

Technically it lowered its issuer credit rating on Varsity Brands to ‘CCC+’ from ‘B-‘ and its issue-level rating on its first-lien term loan to ‘CCC+’ from ‘B-‘. The negative outlook reflects the potential for a lower rating over the next 12 months if, in S&P’s view, the risk of a near-term default has increased, including a liquidity crisis, violation of financial covenants, or restructuring.

S&P also wrote: “We could lower the rating if Varsity Brands’ sales and profit decline substantially amid the pandemic leading to free cash flow dropping to below $10 million or EBITDA interest coverage sustained near 1x. We could also lower our rating if we believe Varsity Brands is likely over the subsequent 12 months to file for bankruptcy protection or enter into a restructuring agreement with its lenders that we would view as tantamount to a default. This could be precipitated by dwindling liquidity, an expected financial covenant violation, or an unsustainable capital structure.

“We could take a positive rating action if COVID-19 is contained and the macroeconomic environment shows signs of recovery from the pandemic and Varsity Brands strengthens its profits and free cash flow with EBITDA interest coverage approaching 2x. This could occur if the forward-booking volume and incoming orders pick up and the company benefits from its digital platform and cost-saving initiatives.”