Credit & Capital

GNC Files For Chapter 11

The vitamin and dietary supplements retailer has a potential buyer as it accelerates plans to cut its storecount.
Vincent RyanJune 24, 2020

GNC Holdings, the vitamin and dietary supplement retailer, has filed for Chapter 11 bankruptcy protection in Delaware. The company is planning to sell itself and reduce its number of stores after attempts to restructure its debt load failed.  

In a recent presentation for investors, according to CBSNews, GNC reported having $96 million in cash and $905 million in total debt.

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The company said it has a potential buyer as well as an agreement in principle with an affiliate of its largest shareholder, Harbin Pharmaceutical Group, which will act as a stalking-horse bidder for the company’s assets.  

The agreement has set an initial bid of $760 million for the assets.  

GNC has secured $130 million in liquidity, including $100 million in debtor-in-possession financing and $30 million from modifications to an existing credit facility 

The Pittsburgh-based company has been closing stores for the past year, but those closings will be accelerated under the bankruptcy. GNC is planning to close from 800 to 1,200 stores through the restructuring. The company had about 7,300 stores as of March 31, most of them in malls and strip shopping centers 

“This acceleration will allow GNC to invest in the appropriate areas to evolve for the future, better positioning the company to meet current and future consumer demand around the world,” GNC said. 

GNC refinanced loans and secured a $300 million investment from Harbin in 2018 but had struggled to handle the debt. The company posted a net loss of $200 million in the first quarter of 2020. Along with other retailers, it has been hurt by store closures in response to COVID-19, but the company said its e-commerce business offset some of its losses, with sales in that sector increasing 25%.  

GNC’s international franchise partners and its corporate operations in Ireland are not part of the bankruptcy. It expects to complete the reorganization by the fall.  

The retailer said in a filing Wednesday it had paid CEO Ken Martindale a $2.2 million bonus five days before filing for bankruptcy protection.

Eric Rosenthal and Sharon Bonelli, both senior directors, of Fitch Ratings, said the GNC bankruptcy lifted the default rate for loans to retail companies to 15%. Retail accounts for 20% of the loan defaults year-to-date, the most of any sector, and also comprises 17% of Fitch’s current Top Loans of Concern list. GNC’s default lifts year-to-date loan default volume to $39.5 billion, nearly four times the amount tallied one-year earlier.

GNC shares are down 70% year-to-date, trading at about 59 cents midday Wednesday.   

(Photo by Andrew Chin/Getty Images)