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Moody's cuts Wellness Pet
Moody's Investors Service said it downgraded Woof Holdings, Inc.'s (Wellness Pet Co.) senior secured first-lien and incremental first-lien term loan ratings to Caa2 from B3 and the senior secured second-lien term loan rating to Ca from Caa2. The agency also cut the corporate family rating to Caa2 from B3 and its probability of default rating to Caa2-PD from B3-PD. The outlook was changed to negative from stable.
The lower rating considers an expectation that Wellness Pet will suffer very high financial leverage and break-even to slightly negative free cash flow over the next 12 months. These problems indicate a heightened likelihood of a restructuring or a distressed exchange, the agency said.
“Moody's view reflects that soft growth in consumer demand for Wellness Pet's products, retailer inventory destocking and higher operating costs will create challenges to quickly improve the company's EBITDA performance in 2024. Without a material improvement in earnings, Moody's believes the high-interest burden will make it increasingly challenging for the company to generate positive free cash flow to pay down debt and reduce leverage. As a result, Wellness Pet would need to rely on its ABL revolver to fund operations and debt service. Moody's views the company's capital structure as increasingly unsustainable,” the agency said in a press release.
The negative outlook reflects the risk that Wellness Pet confronts to cut its leverage and deliver positive free cash flow. “Moody's expectation remains for debt-to-EBITDA leverage to remain elevated above 10x in 2024, which along with weak free cash flow could further increase the risk of a distressed exchange,” the agency said.
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