Moody’s Investors Service downgraded the debt ratings of Wahoo Fitness to reflect Wahoo’s missed debt service payment due 31 March 2023 and the expiration of the applicable grace period. S&P lowered Wahoo’s debt ratings earlier this month.

Moody’s lowered Wahoo’s Corporate Family Rating (CFR) to Ca from Caa3, its Probability of Default Rating (“PDR”) to D-PD from Caa3-PD, and the rating on the company’s senior secured first lien credit facility to Ca from Caa3. The first lien credit facility consists of a $30 million first lien revolver due 2026, and a $225 million original principal amount first lien term loan due 2028. The outlook is negative.

Moody’s said Wahoo entered into a forbearance agreement with its first lien lenders on its interest and principal payments. The missed payment constitutes a default under Moody’s default definition, despite the forbearance agreement. The first lien credit agreement allowed for a five-business days grace period on the payment.

The CFR and first lien ratings were downgraded to Ca due to the payment default and to reflect Moody’s view on recovery.

Moody’s said in its analysis, “Wahoo’s Ca CFR reflects that the company missed the 31 March 2023 interest and principal payment past the five business days grace period. The ratings also reflect the high likelihood of a material debt restructuring as the company continues to discuss strategic alternatives with its lenders to pursue a sustainable capital structure, as well as Moody’s view of recovery. Wahoo has small revenue scale and a narrow product focus in a discretionary and competitive niche market. Moderation in demand following a surge during the pandemic, and increased competition in smart trainers including alternatives offered at much lower price points have created pressure on earnings and cash flow.

“Wahoo benefits from its strong market position in the cycling and smart fitness products market, supported by its good brand recognition, product innovation, and high product quality. The company has meaningfully grown its revenue scale over the past five years, supported by successful new product introductions and tailwinds from positive consumer health and fitness trends. Wahoo benefits from its good geographic, channel, and customer diversification. The company’s asset-light business model and meaningful direct-to-consumer business allow for strong overhead leveraging and very low capital expenditures.

“Wahoo’s ESG credit impact score is very highly negative (CIS-5) driven by its very highly negative exposure to governance risks related to its concentrated ownership, aggressive financial strategy and risk management, and missed interest and principal payments. The company is moderately negatively exposed to environmental and social risks.”