Moody’s cuts Herbalife, rates loans Ba2

Moody's Investors Service said it downgraded Herbalife Ltd.'s corporate family rating to B1 from Ba3, probability of default rating to B1-PD from Ba3-PD and backed senior unsecured notes due 2025 rating to B2 from B1. The agency said it also lowered HLF Financing Sarl, LLC's backed senior unsecured notes due 2029 rating to B2 from B1 and senior secured bank credit facility ratings to Ba2 from Ba1.

Concurrently, Moody's said it assigned a Ba2 rating to the company's planned senior secured first-lien pro rata credit facility consisting of a revolver and term loan A. The ratings on the existing revolver and first-lien term loan A will be withdrawn once the transaction closes. Finally, Moody’s revised the outlook to negative from stable and downgraded the speculative grade liquidity rating to SGL-3 from SGL-2.

Herbalife will use the new loans to pay down $236 million of the company's first-lien term loan A and for transaction fees and expenses. Moody's said it expects Herbalife will use balance sheet cash and partially draw on the revolver to repay the remaining balance of $197 million of the 2.625% senior unsecured convertible notes due this month.

“The downgrade reflects the company's rising leverage as higher input costs, lower volumes and difficulty in recruitment are driving lower operating performance. These factors along with a likely increase in cash interest costs as the company addresses material debt maturities in 2025 are leading to lower free cash flow. Moody's expects these challenges to persist in 2024 and that the company's turnaround strategies and cost initiatives will not materially improve earnings until 2025.

“Moody's expects debt-to-EBITDA leverage to remain above 5x in 2024 and not begin to moderate until the second half of 2025,” the agency said in a press release.

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