S&P Downgrades Weight Watchers (WTW) to 'B-'; Sees Downward Revenue Trends Continuing

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

At the same time, we lowered our rating on the company's first-lien revolver, term loan B-1, and term loan B-2 to 'B-' from 'B+'. Concurrently, we revised the recovery rating on the first-lien facilities to '4' from '2', indicating that lenders could expect average (30% to 50%, at the low end of the range) recovery in the event of a payment default.

"Our rating action on Weight Watchers reflects our forecast that the company will be unable to reverse the declining trends in revenue and profitability since 2012 over the next year," said Standard & Poor's credit analyst Peter Deluca. "We believe credit metrics will deteriorate significantly over the next year and be very weak, given our forecast for sales and margins to meaningfully decline in 2015. However, we forecast credit metrics will marginally improve in 2016 through debt reduction."

The outlook is stable. Though Standard & Poor's expects credit metrics to continue to deteriorate throughout 2015, we believe Weight Watchers will continue to generate free cash flow, which will support the company's continued investment in the business and may be used to repay debt. We also expect the company to maintain adequate liquidity.

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