Blyth's liquidity in 2013 will be constrained by both the November 2013 maturity of its $100 million senior unsecured notes and the potential purchase obligation related to ViSalus. Blyth is required to purchase the remaining 27% stake of that business for approximately $271 million if that operation meets certain performance hurdles. As of June 30, 2012, Blyth publicly stated that it anticipates the operating target requiring the additional purchase to be met. At this time it is unclear how Blyth will fund these upcoming obligations, as cash on hand is not sufficient.
Blyth's B2 corporate family rating reflects Moody's expectation that the company's direct selling candle business will continue to experience weakness due to the highly discretionary nature of the majority of its home expressions products that are sold through catalog, internet and wholesale channels of distribution.
The rating also reflects the increasingly important role of ViSalus, its weight management product business, in offsetting the weakness in its core business. ViSalus has posted extraordinary revenue growth over the last year, with the number of sales representatives growing to over 114,000 as of June 30, 2012 from 28,000 in the year earlier period, a revenue growth rate which Moody's views is unsustainable as the business matures. Moody's believes that ViSalus' business model and the weight management product category carry inherently more risk than its candle and home fragrance product lines.
Moody's expects that consumer discretionary spending (even on relatively low priced home products goods) will remain subdued as the economy remains sluggish and competition for sales consultants by other direct sellers remains high. Furthermore, we expect the company's financial policies to favor shareholders given the large concentration of ownership by the Goergen family.
The negative outlook also reflects Moody's uncertainty related to the company's possible IPO of ViSalus, given the implications that it may have for the company's liquidity profile for 2013, in particular as it relates to the $271 million obligation to purchase the remaining 27% of ViSalus in the first half of 2013.
These risks are partially mitigated by Blyth's modest leverage and current strong cash position.
Blyth's ratings could be downgraded if the 2013 liquidity concerns are not addressed in the near term. The rating could also be downgraded if sales meaningfully decline or credit metrics deteriorate such that debt-to-EBITDA approaches 4.5 times or free cash flow-to-debt is sustained in the low single digit range.
Blyth's ratings could be upgraded if sales meaningfully grow at a sustainable rate and ViSalus establishes a stable track record for growing its sales and profitability across all major geographic markets and product categories. In addition, Blyth would need to address is 2013 liquidity concerns, and maintain moderately conservative financial policies with respect to share repurchases, dividends and acquisitions.
The principal methodology used in rating Blyth was the Global Packaged Goods Industry Methodology published in July 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.
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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
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Nancy Meadows Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Peter H. Abdill, CFA MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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