Moody’s Downgrade Isagenix – Outlook Is Negative

“Isagenix’s cash on hand of $19 million as of June 2022 is insufficient to repay the $29 million of revolver borrowings and term loan amortization of $18.8 million over the next 12 months”

“Isagenix’s governance risk is negative and reflects an aggressive financial policy as evidenced by high financial leverage, unsustainable capital structure and continued deterioration of operations.”

According to a short Isagenix press release:

Isagenix International (“Isagenix” or “the Company”), a leader in providing nutrition solutions for weight loss, performance, and healthy aging, announced today that it has entered into a forbearance agreement with an ad hoc group of the Company’s secured lenders.

This forbearance agreement is an important first step as the Company works toward a holistic solution for its secured debt on terms that will ensure Isagenix’s continued market leadership and long-term growth. Isagenix is focused on operating business as usual — both during the forbearance period and well into the future.

“We are excited to have the enthusiastic support and continued partnership of our investors as we look ahead to the future and longevity of Isagenix,”

said Isagenix Chief Executive Officer Sharron Walsh.

“We are collaborating to create a stronger financial foundation for our business, which will further enable us to invest in innovation, digital solutions, and overall wellbeing. Our team knows this agreement is a reflection of the potential our key stakeholders see in our future.

We are confident in the steps we’ve taken so far to further strengthen our balance sheet, and we look forward to fostering long-term growth for our community.”

Isagenix is represented in this matter by O’Melveny & Myers LLP, BRG, and FTI Capital Advisors LLC.

Meanwhile Moody’s downgrade Isagenix’s CFR to C on elevated restructuring risk; outlook is negative.

Moody’s Investors Service (“Moody’s”) downgraded Isagenix International, LLC’s (“Isagenix”) Corporate Family Rating to C from Caa2 and Probability of Default Rating to C-PD from Caa2-PD. Concurrently, Moody’s downgraded the ratings of Isagenix’s first lien senior secured revolving credit facility and term loan to Ca from Caa2. The rating outlook is negative.

The downgrades reflect Isagenix’s heightened liquidity and default risks, including the high potential for a distressed exchange given significant revenue and EBITDA declines and the amount of maturing debt due in the next nine months. The downgrades also reflect weak recovery prospects for Isagenix’s creditors if there is a default. The company’s ability to absorb inflationary costs and higher interest rates is challenging amid declining sales, leading to weakening operating cash flow, rising financial leverage, and an unsustainable capital structure.

Governance considerations also contribute to the downgrade because the company in 2020 repurchased debt at a discount in a transaction Moody’s viewed as a distressed exchange default. The willingness to complete such transactions is a shareholder-focused strategy that heightens risk of another distressed exchange.

The company’s founders retain majority ownership and Moody’s believes they have a long-term commitment to the company. However, it is unclear the extent to which the founders are willing to inject capital into the business to help alleviate the pressures from high leverage and to reinvest to help execute an operational turnaround. Moody’s may consider any such transaction, if one occurs, as a distressed exchange depending on the structure and use of proceeds. Moody’s views as unlikely a capital injection from the ESOP that owns a minority 30% position in the company.

Moody’s views liquidity as weak, reflecting the lack of sufficient cash and free cash flow to meet the required term loan amortization of $18.8 million in the next 12 months, repay borrowings on the revolver that expires in June 2023, and fund roughly $5 million of acquisition-related notes due in March 2023.

The company’s ability to comply with the maintenance total net leverage covenant is also questionable because of declining earnings and step downs in the covenant. Isagenix’s revenue continues to decline meaningfully through the first half of 2022. The sales force is a significant driver of revenue across the company’s multi-level marketing business model, and Moody’s believes declining enrollment will continue to reduce revenue and EBITDA.

About Isagenix International

Established in 2002, Isagenix International believes that everyone deserves to experience a healthy, joyful, and abundant life. The global wellbeing company artfully crafts more than 175 effective products and offers a supportive community for its more than 550,000 customers worldwide.

Isagenix shares its products through a network of independent distributors in 23 markets: the United States, Canada, Puerto Rico, Australia, New Zealand, Mexico, the United Kingdom, Ireland, the Netherlands, Belgium, Spain, Austria, Denmark, Finland, France, Germany, Italy, Japan, Norway, Poland, Portugal, Sweden, and Switzerland. The private family-owned company has its world headquarters in Gilbert, Arizona. For more information, visit Isagenix.com.