Moody's affirms GNC

Moody's Investors Service said it affirmed all ratings of General Nutrition Centers Inc., including the B1 rating on the $360 million bank loan and the B3 rating on the $215 million senior subordinated notes due 2010.

The outlook is stable.

Given Moody's understanding that new equity will be used to redeem the $103 million preferred stock issue at 112%, to clawback about $37 million of senior subordinated notes at 108.5%, and to repurchase common equity from existing shareholders with the balance, the affirmation reflects Moody's belief that the company's credit quality will not improve to a higher rating level as a result of the initial public offering.

Moody's said the strength of the GNC trade name, the good store-level margins and the company's new access to the public equity markets support the ratings, but the flat sales over the previous several years, the high financial leverage, and Moody's belief that the transaction will be cash flow neutral adversely impact the credit opinion.

Moody's rates GNC's $75 million secured revolver at B1, its $285 million secured term loan at B1, the $215 million 8.5% senior subordinated notes due 2010 at B3, its senior implied rating at B1 and the long-term unsecured issuer rating at B2.

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