Moody's upgrades GNC

Moody's Investors Service said it upgraded General Nutrition Centers, Inc.’s corporate family rating to Ba3 from B1, probability of default rating to Ba3-PD from B1-PD and senior secured credit facility to Ba2 (LGD3) from B1 (LGD3), affirmed the speculative grade liquidity rating at SGL-1 and changed the outlook to positive from under review for upgrade.

"The upgrade reflects the reduction in adjusted debt due to changes in Moody's approach for capitalizing operating leases," Moody's analyst Mike Zuccaro said in an agency news release. As a direct result of this change, GNC's leverage has improved to around 3.5 times from around 4.5 times under the prior methodology.

"The positive outlook considers our expectation for continued modest improvement in operating performance and credit metrics as the company continues to focus on growing its domestic business, improve marketing and managing inventory levels,” Zuccaro added.

The agency said GNC's Ba3 corporate family rating is supported by the company's stable credit metrics, well-known brand name in its target markets and Moody's favorable view of the vitamin, mineral and nutritional supplement category, which accounts for about one-third of GNC's consolidated revenues.

Key credit concerns include GNC's sizable concentration in sports nutrition and the potential risk arising from adverse publicity and product liability claims with regard to certain products sold by GNC, particularly diet products and herbs, Moody’s said.

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