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Moody’s slices WW ratings
Moody’s Investors Service said it lowered its corporate family rating for WW International Inc. (Weight Watchers) to B3 from B1, its probability of default rating to B3-D from B1-PD and the ratings on its $175 million revolving credit facility expiring 2026, $945 million term loan maturing 2028 and $500 million of notes due 2029 to B3 from B1. WW's speculative grade liquidity rating was downgraded to SGL-2 from SGL-1 and the outlook revised to stable from negative.
Last week, WW reported 2022 revenue and year-end subscriber counts both declined by about 14% from 2021 levels. In addition, WW said that it had agreed to purchase Weekend Health, Inc. ("Sequence"), a digital health platform for clinical weight management, including tele-health services supporting prescription weight management medications, for $106 million (net of cash acquired).
WW plans to fund the deal with about $40 million of cash at closing, $35 million of newly-issued WW shares, and $30 million of cash payable over the next two years. The purchase is expected to close before June 30.
"Today's downgrades reflect our anticipation for very high financial leverage, modest interest coverage and limited free cash flow unless the company can reverse subscriber declines, which could take two years or more, as well as our concern that cash used to fund the Sequence acquisition and limited access to the revolver due to the springing financial covenant have reduced available liquidity," said Edmond DeForest, a Moody's senior vice president, in a press release.
The improved outlook reflects a forecast for a return to modest subscriber, revenue and profit growth over the next two years, with debt to EBITDA expected to remain above 8x until 2024, the agency said.
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