Moody’s Investors Service (“Moody’s”) appended a limited default “/LD” designation to Isagenix International, LLC’s (“Isagenix”) Probability of Default Rating (PDR), changing the PDR to C-PD/LD from C-PD.
The/LD designation reflects Moody’s view that Isagenix’s continued failure beyond the grace period to make its interest and principal payments that were due in September 2022 on its senior secured first lien credit facility is a limited default despite the company having entered into a forbearance agreement.
The limited default designation will remain until the company resolves the missed interest and principal payments. Isagenix’s Corporate Family Rating remains unchanged at C and the outlook remains negative.
Isagenix’s C Corporate Family Rating reflects the high likelihood of a debt restructuring based on the company operating under a forbearance agreement due to missed interest and principal payments due in September 2022. The company’s high leverage, refinancing risk driven by expiration of the revolving credit facility in June 2023, and weak operating performance as earnings continue to decline indicate the current debt structure is untenable.
Moody’s believes a deterioration in member base and weakening consumer demand is contributing to revenue declines, which combined with inflationary cost pressures is leading to significant EBITDA erosion.
Moody’s anticipates ongoing headwinds in the company’s recruiting efforts to continue.
Isagenix’s current capital structure is unsustainable, prompting Moody’s expectations for a high likelihood of near-term restructuring and that the company will unlikely be able to raise sufficient new funds to refinance the maturing debt at a manageable interest cost.
Isagenix’s ratings are supported by a broad product suite and variable cost structure given the outsourced manufacturing model, including sales commissions and marketing expenses that fluctuate with sales volumes.
Isagenix’s other outstanding debt, totaling about $43 million of subordinate Zija notes and subordinate shareholder notes and accrued interest, are not rated.
The company has indicated the missed interest and principal payments on the secured credit facility did not constitute an event of default under any of Isagenix’s shareholder notes or Zija notes. The company and its lender group are operating pursuant to a forbearance agreement that became effective on September 23, 2022. The forbearance period is in effect until November 15, 2022.
The negative outlook factors in Moody’s expectations that Isagenix will continue to face challenges in stabilizing its member base and improving its operating performance. The outlook also recognizes the high likelihood of a debt restructuring and that recovery prospects could further weaken if operating performance continues to deteriorate.
Ratings could be downgraded if estimated recovery values continue to deteriorate beyond the current expectations or if liquidity weakens.
Ratings could be upgraded if the company can improve liquidity including addressing maturities at a manageable interest cost or through a restructuring that materially reduces debt.
The company would also need to materially improve revenue and earnings growth, demonstrate an ability to stabilize membership and sales representative counts, and if the company’s capital structure is sustainable and free cash flow is sufficient to meet debt service.
The principal methodology used in this rating was Consumer Packaged Goods published in June 2022 and available at https://ratings.moodys.com/api/rmc-documents/389866. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Isagenix International, LLC is headquartered in Gilbert, Arizona, is a direct-seller of weight management products, nutritional supplements, and personal care products intended to support a healthy lifestyle. The company operates through a multi-level marketing system that consists of members largely in the US.
Isagenix’s management and employees acquired a 30% ownership interest in the company through an ESOP in June 2018. The majority of the company is owned by co-founders Jim and Cathy Coover. The company generated about $510 million of revenue for the last twelve months ending June 30, 2022.
Get more information, facts and figures about Isagenix, click here for the Isagenix overview.
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