Moody's rates GNC loan B1, new notes B3

Moody's Investors Service said it rated the new bank loan and senior subordinated notes of General Nutrition Centers Inc. at B1 and B3, respectively, subject to review of final documentation. The outlook is stable.

Proceeds from the term loan portion of the bank facility and the senior subordinated notes, together with $300 million of preferred and common equity, will be used to finance the leveraged buyout of the company by affiliates of Apollo Management L.P.

The strength of the GNC trade name and the good store-level margins support the ratings, but the flat sales over the previous several years and the company's relatively high post-LBO lease adjusted leverage and low fixed charge coverage adversely impact Moody's opinion of the company.

Moody's said the stable outlook reflects its expectation that the company will resume growing total revenue and average unit volumes following several flat years, develop a consistent pipeline of new VMS products, and continue to avoid exposure to ephedra-related liability.

Over the longer term, ratings could move upward as the company grows its cushion to cover fixed charges and the system successfully expands both from new store development (particularly in international markets) and existing store performance.

Pro-forma for the LBO, lease adjusted leverage equaled about 5.6 times and fixed charge coverage was 2.4 times for the 12 months ending Sept. 30. Moody's said revenue and margins have been pressured for the previous several years because of decreases in demand growth for VMS products, the lack of exciting new products to drive incremental sales, and the abrupt fall in ephedra sales (accounted for about 18% of retail sales in 2002) to zero.

Over the next several years, Moody's anticipates that franchisees will open most new stores and that most cash flow will be dedicated to interest expense and maintenance capital expenditures so debt protection measure improvements will be modest.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.