Wahoo’s debt “unsustainable” warns S&P Global Ratings

Wahoo Fitness has this week seen its credit rating slashed from CCC to -CCC by S&P Global Ratings, which outlined a view that a default scenario could be on the horizon for the trainer business in the near future without a fresh cash raise.

The lack of liquidity could push the business toward a restructuring of its debt, or a possible sale scenario within the next six months, should the business fail to quickly improve its cash at hand. Wahoo would not be the first business of its kind to run into difficulty on the back of a burst of demand during Covid that has since evaporated; the Saris Group similarly experienced a whiplash that saw it have to sell up to consumer goods giant C+Global.

This decline is attributed largely to retailers slowing the pace of inventory replenishment as consumers hold on to their cash. Those who may have long wanted a turbo trainer may also have bought during the pandemic’s lockdowns, with turbo trainers one of the very first products to reveal the ‘boom’ in demand for cycling products back in 2020.

The ratings agency said in its assessment that a sales decline of 56% year-on-year revealed in the third quarter of 2022 was to be followed by an estimated further 35% decline in the fourth quarter. That, says the agency, will reveal a EBIDTA loss for 2022.

S&P wrote in its summary: “Wahoo’s capital structure is unsustainable given its negative EBITDA and cash flow. We assess the company’s liquidity as weak because its liquidity sources are insufficient to cover its cash needs over the next 12 months. Wahoo had minimal cash on hand and no availability under its revolver as of the end of 2022 after funding its quarterly interest and mandatory debt amortization payments. Further, we expect its operating conditions will remain pressured over the next few months as it laps the COVID-related demand tailwinds it benefitted from last year. This will lead it to generate negative free operating cash flow (FOCF), which, along with the higher interest expense on its floating-rate debt, will likely lead to a near-term liquidity shortfall. We forecast Wahoo will also violate its consolidated total net leverage covenant, which became effective as of Dec. 31, 2022, adding to its default risk in the first half of 2023.

“Wahoo’s operating performance continues to deteriorate amid the weakening macroeconomic environment as consumer spending shifts toward non-discretionary categories.”