Moody's rates GNC note Caa1

Moody's Investors Service said it assigned a Caa1 rating with a loss-given-default assessment of LGD5 (87%) to the proposed $325 million note issue of GNC Parent Corp., which owns General Nutrition Centers, Inc.

The agency also upgraded the $150 million 8 5/8% senior notes due 2011 to Ba3 (LGD3, 31%) from B1, $215 million 8½% senior subordinated notes due 2010 to B3 (LGD4, 64%) from Caa1 and affirmed the senior secured bank loan at Ba2 (LGD1, 6%) and the corporate family and probability-of-default ratings at B2.

The outlook is stable.

Proceeds from the new debt be used to retire the company's payment-in-kind preferred stock for $149 million and to pay a $190 million dividend. In conjunction with the new holding company debt, the company also announced that it is exploring strategic alternatives such as a sale of the company or an initial public offering.

The affirmation of the corporate family rating reflects the agency's view that credit risk remains consistent with a B2 rating, in spite of the higher leverage. The upgrade of the existing notes reflects their new place in the capital structure.

Moody's said the ratings balance the company's aggressive financial policy, weak credit metrics and revenue vulnerability to new product introductions against its geographic diversification and a relative lack of cash flow seasonality.

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