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Rating Action:

Moody's upgrades Herbalife's PDR to Ba1

Global Credit Research - 15 Oct 2010

New York, October 15, 2010 -- Moody's Investors Service today upgraded Herbalife International, Inc.'s ("Herbalife") Probability of Default Rating to Ba1 from Ba2. The company's Corporate Family Rating and the senior secured bank credit facility rating were affirmed at Ba1. The outlook remains stable.

RATINGS RATIONALE

The upgrade in the Probability of Default rating to Ba1 from Ba2 acknowledges Herbalife's continued strong operating performance and its improved sales leader retention rate. As Herbalife's probability of default continues to decline, asset recovery rates in the event of default have become less clear. Thus, Moody's is applying its standard 50% family recovery rate to Herbalife instead of the previously used 65% rate.

Herbalife's Ba1 Corporate Family Rating reflects its very strong credit metrics, healthy liquidity profile, conservative capital structure, significant geographic diversification with sales in 73 countries, and the stable sales performance of its core meal-replacement products. These positive attributes are offset by the company's modest scale, sales concentration in a relatively narrow product segment -- meal replacement shakes and nutritional supplements -- and its small market share in the broader packaged food market. The rating also acknowledges the ongoing challenges of the multi-level selling model, particularly the high turnover of the sales representatives.

The following rating was upgraded:

Probability of Default Rating to Ba1 from Ba2.

The following ratings were affirmed and LGD point estimates adjusted:

Corporate Family Rating at Ba1;

$250 million secured revolving credit facility at Ba1 (to LGD 3, 40% from LGD 2, 27%);

$200 million secured term loan at Ba1 (to LGD 3, 40% from LGD 2, 27%);

The stable outlook reflects our expectations that the company will continue to generate strong earnings and cash flow and that it will maintain very strong debt protection measures. The outlook assumes that the company will maintain a conservative financial policy.

An upgrade is unlikely in the foreseeable future due to the company's narrow product offering. The credit quality of Herbalife would improve should the rate of decline of new sales representatives stabilize in South and Central America and EMEA and the growth rate of active sales representatives turns positive.

Ratings could be downgraded should operating performance decline, financial policy become more aggressive, leverage increases meaningfully, or liquidity weaken. In addition, downward rating pressure may result should the number of re-qualified sales leaders continue to decrease, which could lead to weaker operating performance.

The principal methodologies used in rating Herbalife International, Inc were Global Business & Consumer Service Industry published in August 2007, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Herbalife International, Inc., headquartered in Los Angeles, California, is a marketer of weight management meal replacement shakes, nutritional supplements, energy drinks, and skin care products that are sold through a global network of 2.1 million independent distributors in 73 countries. Revenues are about $2.5 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Margaret Taylor
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's upgrades Herbalife's PDR to Ba1
No Related Data.
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