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Investing.com -- Fitch Ratings has upgraded the senior secured rating of THG Operations Holdings Limited’s EUR445 million Term Loan B to ’BB’ from ’BB-’, removing it from Rating Watch Positive. The rating agency has also affirmed the Long-Term Issuer Default Rating (IDR) of THG PLC, a UK-based wellness and beauty company, at ’B+’ with a Stable Outlook.
The IDR reflects THG’s moderate business scale and the established market positions of its beauty products in online retail. The upgrade of the senior secured rating is due to an improved recovery following a debt reduction in its amend-and-extend (A&E) transaction.
The Stable Outlook is based on expectations of continued EBITDA recovery in 2025. The completed demerger of Ingenuity, together with the debt reduction, is expected to provide sufficient rating headroom to accommodate strategy execution risks and potential weakening consumer demand in THG’s markets, especially the US.
Fitch projects mid-to-high, single-digit revenue expansion for THG’s nutrition business in 2025 before it normalises towards low-to-mid single-digits annually in 2026-2027. This recovery is expected to be driven by average selling price normalisation after the destocking and a further increase through the expanding offline sales channel.
Fitch also expects THG’s free cash flow (FCF) margin to stabilise at above 2% from 2025, driven by the EBITDA improvement, reduced interest costs following the A&E deal and materially reduced capex needs after the Ingenuity business demerger.
THG is expected to continue its positive trading momentum in the beauty business in 2025, supported by a stable to moderate recovery in consumer sentiment in THG’s main markets and the company’s increasing focus on more resilient and faster-expanding prestige skincare and specialist beauty products.
Fitch calculates EBITDA leverage will drop to 3.9x in 2025, due mainly to the reduction in debt, to GBP371 million (EUR445 million equivalent), following the completed refinancing but also the expected recovery in EBITDA.
THG’s established position in the beauty and wellbeing consumer markets demonstrates a niche but robust business model, underpinned by moderate geographic diversification and increasing penetration of markets beyond the UK and Europe.
Fitch’s rating case for the issuer includes assumptions of revenue decline of 9.6% in 2025, driven by Ingenuity demerger, followed by annual growth of around 3% over 2026-2027, and EBITDA margin improving towards 5.6% in 2025 and 6.1% in 2026, from 3.6% for 2024.
The recovery analysis assumes that THG would be restructured as a going concern rather than liquidated in a default. Fitch applies a distressed enterprise value/EBITDA multiple of 5.5x to calculate a going concern enterprise value, reflecting THG’s expanding position in beauty and wellbeing D2C channels with attractive proprietary brands.
Negative rating action could be triggered by more aggressive financial policy or operating underperformance leading to a lack of deleveraging, with EBITDA leverage staying above 5.5x, while positive rating action could be conditional on dynamic sales progression reflecting increased scale and solid pricing power, along with a stable cost base driving EBITDA margin improvement.
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