Investing.com -- S&P Global Ratings has upgraded the issuer credit rating of U.S.-based Herbalife (NYSE:HLF) Ltd. from ’B’ to ’B+’ on the grounds of deleveraging. The firm’s S&P Global Ratings-adjusted leverage was reduced to 4.1x in 2024, down from an anticipated 4.6x. The firm also experienced improved volume declines and distributor trends compared to the previous year.
Herbalife repaid $65 million of debt in the first quarter of 2025, which reduced the outstanding balance on its 2025 notes to less than $200 million. This move allowed the company to avoid triggering the springing maturities on its revolving credit facility and term loan B.
The ratings agency also upgraded the issue-level rating on Herbalife’s senior secured debt to ’BB-’ from ’B+’ and the issue-level rating on its senior unsecured debt to ’B+’ from ’B’. The recovery ratings on the senior secured debt and the senior unsecured debt remain unchanged.
S&P Global Ratings expects Herbalife to further reduce its leverage to 3.6x in 2025 after it repays $197 million of notes due on September 1, 2025, using cash and revolver borrowings. This is supported by an expansion of the company’s EBITDA.
Herbalife’s $400 million revolving credit facility was undrawn as of year-end 2024. The company’s EBITDA improvement stemmed primarily from favorable pricing, lower inventory write-downs, and the positive impact of foreign currency fluctuations.
The company also increased its distributor count in 2024, with new distributors growing in all geographic segments in the fourth quarter except China. This growth was attributed to programs introduced in 2024 aimed at improving distributor productivity through increased training and support.
Despite the improvement in leverage, Herbalife’s participation in the highly competitive weight management and nutritional products industry remains a key risk. The industry is characterized by low barriers to entry and numerous competitive formats. However, S&P Global Ratings expects these risks to remain contained in the U.S. and European markets, which account for less than 40% of Herbalife’s total net revenue.
The stable outlook reflects S&P Global Ratings’ expectation that Herbalife will improve its leverage to 3.6x by repaying its $197 million of outstanding notes due on September 1, 2025, with around $190 million of free operating cash flow.
The ratings could be lowered if Herbalife sustains a leverage of more than 4x. This could occur due to weakening global macroeconomic, regulatory, and geopolitical conditions, escalated competition, or Herbalife’s inability to reenergize its distributor base. Conversely, the ratings could be raised if Herbalife maintains a leverage comfortably below 4x while improving its volumes and distributor numbers in its key markets.
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