GNC has filed for Chapter 11, with plans to reorganize or, alternately, sell itself in bankruptcy.
WHO: GNC has an 85-year history as a leading global health and wellness brand providing high-quality science-based products and solutions consumers need to live mighty, live fit, live long, and live well. The brand touches consumers globally through company-owned retail locations, domestic and international franchise locations, digital commerce, and strong wholesale and retail partnerships across the globe. As of March 31, 2020, GNC had approximately 7,300 locations, of which approximately 5,200 retail locations are in the United States (including approximately 1,600 Rite Aid licensed store-within-a-store locations), and the remainder are locations in approximately 50 countries.
WHY: GNC accelerates store optimization and growth strategies using the Chapter 11 framework to right-size store portfolio and improve its capital structure.
- Revenue has declined for years, and the company has posted a positive profit only two years out of the last five.
- In the period ending March 31, GNC’s revenue took a hit of 16% year-over-year, and it racked up a $166 million operating loss.
- The company has been saddled with nearly $1 billion of debt that was downgraded by S&P to CC in late March, as the COVID-19 pandemic was accelerating and GNC signaled it probably wouldn’t generate enough cash from its business to make a major debt payment.
IN THEIR OWN WORDS: “The Chapter 11 process will allow us to accelerate these strategies and invest in the appropriate areas to evolve in the future, while improving our capital structure and balance sheet,” GNC said in a letter to shoppers.
- The company will pursue a dual-track restructuring for a stand-alone plan or going-concern sale process, with the support of certain of its secured lenders, an affiliate of its largest shareholder, Harbin Pharmaceutical Group Holding Co., Ltd., and GNC’s largest vendor and a joint venture partner, IVC.
- GNC has secured approximately $130 million in additional liquidity through (i) a commitment from certain of its term lenders to provide $100 million in “new money” debtor-in-possession (DIP) financing and (ii) approximately $30 million to come from certain modifications to the existing ABL credit agreement.
- An agreement in principle for the sale of the company’s business has been reached, with the term sheet documenting that agreement outlining a $760 million purchase price for the sale transaction, which would be executed through a court-supervised auction process at which higher and better bids may be presented. The sale transaction is subject to mutually acceptable definitive documentation.
- If the sale transaction is timely consummated as outlined, it would be implemented instead of the stand-alone plan transaction.
- GNC’s largest vendor and a joint venture partner, IVC, is working with the company to ensure a continued supply of products to the company and advance the proposed sale of GNC’s business.
- GNC expects to accelerate the closure of at least 800 to 1,200 stores.
- GNC expects to emerge better positioned to meet the strong consumer demand for health and wellness products by executing on omnichannel and brand strategies.
- Business operations continue; all US and international franchise partners and corporate entities outside North America are not included in the Chapter 11 process.
- GNC is advised in this process by Latham & Watkins LLP, FTI Consulting, and Evercore. The company has retained the Bank of China Limited Macau Branch as debt advisor with respect to certain sale-related financing.
- The company anticipates exiting Chapter 11 in the fall.