Weight Watchers International covenant-lite B-2 term debt due 2020 (L+325, 0.75% LIBOR floor) is extending losses this morning, recently marked at 53.5/55.5, after coming under pressure late yesterday on the company’s fourth-quarter results, which missed Street expectations and showed declines in membership. By comparison, the paper was wrapped around 59 late yesterday following the news and was pegged in a 63/64 context ahead of the results, according to sources.
The most recent drop pushes the paper, issued in April 2013 at 98.5, to fresh lows, according to Markit.
The less-liquid B-1 term loan due 2016 (L+300) has held up better, with dealers making markets in the paper this morning at 94/96 and 95/97, which is down 1-2 points from prior to the news. Note that on yesterday’s conference call, management said it is targeting a cash balance of at least $350 million by the end of the year, which would provide it with “ample liquidity” to address the April 2016 maturity of the B-1 tranche, according to a transcript of the call provided by Bloomberg. For reference, there was about $296 million outstanding under the B-1 tranche as of Sept. 30, SEC filings show.
The company’s shares, which trade on the New York Stock Exchange under the ticker WTW, tumbled about 31% this morning on the news, to $12.12.
As reported, the company reported that fourth-quarter revenue declined 10.4% from the prior year period, to $327.8 million, and fell below the S&P Capital IQ consensus estimate of $332.7 million, as membership declined 15% in the past quarter, to 2.51 million.
Meanwhile, fourth-quarter EBITDAS (earnings before interest, taxes, depreciation, amortization and stock-based compensation) declined to $29.9 million, from $92.9 million in the year-ago period.
LTM adjusted EBITDA came in at $338.3 million, for net leverage of about 6.1x, given the $2.358 billion of debt outstanding, net of $301 million of cash. Leverage is up a full turn, from 5.1x, at the end of the third quarter, SEC filings show.
“While we still believe in our underlying strategies, I am disappointed that we are not yet where we hoped to be and our turnaround will take longer than we had anticipated,” CEO Jim Chambers warned.
Chambers also said that the company is taking more-aggressive steps with cost structure through a $100 million cost-savings initiative.
The company reported a fourth-quarter loss of $16.1 million, or $0.28 per share, versus a profit of $30.8 million, or $0.24 per share in the year-ago period.
For 2015, Weight Watchers expects earnings per share of $0.40-0.70, versus the S&P Capital IQ consensus estimate of $1.43 per share.
Weight Watchers is rated B/B1, while its term debt is rated B+/B1, with a 2 recovery rating.
Weight Watchers in April 2013 wrapped a comprehensive refinancing of its bank debt via J.P. Morgan, Bank of America Merrill Lynch, HSBC, Scotia, and U.S. Bank. J.P. Morgan is administrative agent. The transaction was comprised of a $2.1 billion, seven-year B-2 term loan; a $300 million, three-year B-1 term loan; and a $200 million, five-year revolver. The term loans are covenant-lite. – Kerry Kantin/Rachelle Kakouris