Thu 10/22/2020 14:44 PM
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Herbalife Covenant Analysis Tear Sheet, Debt Documents Summaries
Herbalife Covenant Analysis Debt Documents

Herbalife Nutrition Ltd. is incorporated in the Cayman Islands and, together with its global subsidiaries, sells various products relating to weight management, targeted nutrition, and energy and fitness, largely through a network of independent sellers. Herbalife segments its geographic operations into North America, Mexico, South and Central America, EMEA, Asia-Pacific, and China. Continue reading for the Covenants by Reorg team's covenant analysis for Herbalife nutrition, and request a trial to access our covenant analysis of hundreds of other credits.

As of June 30, Herbalife had an undrawn $282.5 million revolver, a $258 million outstanding under a term loan A facility and $737 million outstanding under a term loan B facility, all secured and executed under the same credit agreement. Herbalife also has two series of senior unsecured notes: $600 million of senior notes due 2025 and $400 million of senior notes due 2026. It is also the issuer of $449 million of convertible notes due 2024.

The company and its lenders amended the credit agreement in December 2019 and March 2020 to decrease the pricing across all tranches, and extend the maturity and increase the principal of the revolver and term loan A facility. On Aug. 17, the company repurchased 11.6% of its shares outstanding for $750 million using cash on hand.

The company’s capital structure as of June 30, adjusted for the Aug. 17 share repurchase, is as follows:
Herbalife Nutrition covenant analysis capital structure from Covenants by Reorg

Covenant Conclusions

Liquidity and financial covenant - Liquidity as of June 30, adjusted for the Aug. 17 share repurchase that used $750 million cash on hand, was $328 million. The credit agreement contains a requirement to maintain a 4.00x total leverage ratio; Herbalife’s ratio was 2.79x as of June 30. The cash expenditure on the share repurchase in August does not affect the ratio, as it does not permit cash netting.

Debt and liens - We estimate that the company can incur an additional $1.07 billion in first lien secured debt and a significant amount of unsecured debt. Approximately $178 million of structurally senior debt can be incurred.

Dividends, investments and prepayments - Due to its ability to access leverage-based ratio baskets under the credit agreement, Herbalife was unrestricted in paying dividends, making investments or prepaying junior debt as of June 30; this includes purchasing its unsecured senior notes on the open market.

--Richard Barbour II
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