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20 Sep 2012
New York, September 20, 2012 -- Moody's Investors Service today affirmed the B2 Corporate Family
Rating and other ratings for Blyth, Inc. ("Blyth")
and changed the rating outlook to negative from stable. Moody's
also assigned Speculative Grade Liquidity ratings SGL-4 (weak liquidity).
The outlook change and SGL-4 reflect the company's constrained
liquidity profile in 2013, continued weakness in its core direct
selling candle and home fragrance business, as well as uncertainty
stemming from the recent announcement that it filed a registration statement
for a potential initial public offering ("IPO") of ViSalus,
the weight management product business in which the company currently
holds a 73% stake. The outlook also reflects the growing
reliance upon its ViSalus weight management products business and the
heightened risk profile associated with its business model and the weight
management product category generally in comparison to candles and fragrance
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
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
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Moody's considers the quality of information available on the rated
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Moody's adopts all necessary measures so that the information it
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Please see Moody's Rating Symbols and Definitions on the Rating
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Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Affirms Blyth's ratings, changes outlook to negative
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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