Moody's lowers GNC speculative grade rating

Moody's Investors Service said it affirmed General Nutrition Centers, Inc.'s corporate family rating at B3, probability of default rating at B3-PD, senior secured term loan B-2 rating at B3 (LGD 4) and senior secured FILO term loan rating at Ba3 (LGD 2).

The agency also lowered its speculative grade liquidity rating to SGL-3 from SGL-2.

The negative outlook reflects that more than $600 million of debt matures with the next two years as the company continues to stabilize its operating income and executes its business realignment, Moody's said.

The agency said it anticipates that General Nutrition can continue to generate more than $70 million in free cash flow annually to further reduce debt.

The ratings are supported by the company's well-known brand name in its target markets, along with a positive view of the vitamin, mineral and nutritional supplement category due to favorable demographic trends in the United States, Moody's said.

The company also benefits from increasing penetration of GNC-branded products across its system, which is about 54% currently, the agency said.

GNC's credit metrics have weakened as domestic comparable store sales remain tepid and operating earnings remain under pressure despite its reductions in price through its GNC One program, Moody's said.

Other key credit concerns include GNC's sizable concentration in sports nutrition, which is a much more limited product segment with a relatively smaller target market, the agency said.

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