Thu 02/04/2021 10:00 AM
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Relevant Items:
Covenants Tear Sheet, Debt Document Overviews
Weight Watchers’ Debt Documents

Weight Watchers International Inc. is a global company headquartered in the U.S. that offers various products and services, including weight loss and maintenance programs. Continue reading for our Americas Covenants team's analysis of the Weight Watchers covenant card and Request a Trial for access to the linked debt documents, tear sheets, and summaries as well as our coverage of thousands of other stressed/distressed debt situations.

On its third-quarter earnings call, management stated that “despite the negative impact of COVID on our Studio revenue … [w]e grew Digital subscribers by 23%, with strong growth in every geographic market. This accelerated Digital growth enabled us to achieve year-on-year comparable operating income levels and EPS growth.” Overall, the company was optimistic and noted several times on the call that “people in a COVID world need health and wellness more than ever.” Management further stated that reducing leverage is a priority for the company.

The company is the borrower under a $175 million revolving credit facility and a $1.27 billion term loan facility, executed under the same credit agreement. The company is also the issuer of $300 million of unsecured notes due 2025. In response to the coronavirus-related shutdowns, the company drew $148 million under its revolving credit facility, which it repaid during the second quarter. The company also amended the credit agreement to increase revolving commitments by $25 million and loosened the first lien maintenance covenant under the revolver beginning in the March 2021 quarter.

The company’s capital structure as of Sept. 26, 2020, is as follows:
Weight Watchers capital structure

 
Covenant Conclusions (as of Sept. 26)

Financial covenants - The credit agreement includes 4.5x first lien leverage ratio, stepping up to 5x for the first quarter of 2021. The covenant is for the benefit of the revolving lenders only and is tested only when revolving usage exceeds 33.3% (excluding up to $5 million of outstanding but undrawn letters of credit and all cash-collateralized letters of credit). As of Sept. 26, the revolver was undrawn.

Debt and lien capacity - The company could incur $371 million of additional first lien debt, about $1 billion of junior lien debt, $504 million of unsecured debt and $53 million of structurally senior debt.

Dividend and investment capacity - Because the company can access its leverage-based investment basket, which requires compliance with a 4.5x total leverage ratio, it is not restricted from making investments. Since the company is unable to access its leverage-based restricted payments basket, which requires compliance with a 3.5x total leverage ratio, it is limited to $56 million of dividends plus amounts available under its builder baskets, which is based on 50% of consolidated net income, if the company is in compliance with a 4x total leverage ratio.

Open-market purchases of the notes - The credit agreement’s prepayment covenant restricts the prepayment of unsecured debt, including the company’s outstanding unsecured notes. However, since the company can access its leverage-based prepayment basket, which requires compliance with a 4.5x total leverage ratio, it is currently not restricted from purchasing the senior notes in the open market. The company could also access a shared grower basket not to exceed the greater of $50 million and 3.75% of total assets to purchase the notes plus amounts available under the builder basket, if the company is in compliance with a 4x total leverage ratio.

--Maribeth Lemen
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