S&P Global upgrades Woof Intermediate to CCC+ after debt deal

Investing.com -- S&P Global Ratings has upgraded Woof Intermediate Inc. (dba Wellness Pet) to ’CCC+’ from ’SD’ following the completion of a debt restructuring, with a negative outlook.

The U.S.-based pet food company recently restructured its debt, with lenders exchanging first-lien and second-lien term loans for new first-lien first out (FLFO), first-lien second out (FLSO), and first-lien third out (FLTO) term loans at a discount to par. The company also received $100 million in new money as part of the FLFO debt.

S&P assigned a ’B-’ rating to the $534 million FLFO term loan due 2029, with a recovery rating of ’2’, indicating expected recovery of 70% in case of default. The $356 million FLSO term loan received a ’CCC-’ rating with a ’6’ recovery rating, suggesting negligible recovery. The $105 million FLTO term loan was not rated.

The transaction extended the company’s debt maturities to December 2029 and improved its liquidity position. The maturity of the asset-based lending facility was also extended to October 2029 from December 2025. At the close of the transaction, Wellness Pet had approximately $75 million in cash and cash equivalents.

Despite these improvements, S&P views the capital structure as unsustainable, with S&P Global Ratings-adjusted leverage estimated at about 11.8x and EBITDA interest coverage at 0.8x. The rating agency expects the company to continue generating negative free operating cash flow.

Wellness Pet’s revenues declined by more than 10% in the first quarter of 2025 after a 4% decline in fiscal 2024. This drop was attributed to inventory destocking, pricing violations at retailers like Amazon (NASDAQ:AMZN) and Chewy (NYSE:CHWY), and softer demand for branded dry dog food and premium wet cat offerings.

The company has outlined initiatives including new product lines and increased marketing spend to spur growth. S&P forecasts revenues will decline 3% in fiscal 2025 before returning to growth in 2026. The rating agency expects EBITDA margins to improve by about 150 basis points in 2025 and a further 50 basis points in 2026.

S&P could lower its ratings if Wellness Pet continues to make investments without improving sales volumes and profitability, if worsening economic conditions further weaken its liquidity position, or if the company announces another distressed exchange or restructuring.

A positive rating action could occur if the company’s profitability initiatives expand its margins and support positive cash flow generation and improved liquidity.

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