S&P Cuts Weight Watchers (WTW) to 'B'; Sees Weaker Profitability

Standard & Poor's Ratings Services lowered its corporate credit rating on New York City-based Weight Watchers International Inc. (NYSE: WTW) to 'B' from 'B+'. The outlook is stable. 



At the same time, we lowered our issue-level ratings on Weight Watchers' senior secured revolving credit and term facilities to 'B+' (one notch higher than our corporate credit rating on the company) from 'BB-'. Our recovery rating on these facilities is '2', indicating our expectation of substantial (70% to 90%) recovery for lenders in the event of a payment default.  



Concurrently, we removed all ratings from CreditWatch, where we had placed them with negative implications on Feb. 21, 2014.



"The downgrade reflects the further downward revision of our base-case forecast, as we believe Weight Watchers' profitability will be weaker than we previously anticipated," said Standard & Poor's credit analyst Linda Phelps. "Though the company continues to implement cost reduction measures, we expect significant margin erosion given the substantial decline in revenues we forecast for 2014." 



The outlook is stable. Though we expect credit metrics to continue to deteriorate throughout 2014, we believe Weight Watchers will continue to generate good free cash flow, which will support the company's continued investment in the business and may be used to repay debt.

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