GNC has been walking a debt tightrope since at least 2017, when it successfully renegotiated some of its liabilities and subsequently secured a $300 million investment from Chinese firm Harbin Pharmaceutical Group.
The latest hurdle the company faces is a debt trigger on June 15. If the company does not have $100 million in hand on that date, a $60 million payment on its revolving credit facility will come immediately due, according to Bloomberg News.
Deadline for stock exchange listing
The news of the financing talks boosted the price of the company’s shares to as high as $1.48 earlier this week. The price has receded to 98 cents today, but the stock boost signals significant progress on another deadline the company faces: potential delisting from the New York Stock Exchange. GNC was notified in late April that is was out of compliance with NYSE listing rules, which include having an average share price above $1. The company was given six months to come into compliance or face having its shares taken off the exchange, which would seriously impede its efforts to raise capital in the future. Prior to the notification, GNC’s shares had sunk to as low as 42 cents.
GNC has been struggling with falling sales and high fixed costs for a number of years. The company has been a big player in the sports nutrition market, and brought out many innovative products over the years. But sports nutrition customers were among the first consumers in the dietary supplement industry to start buying a lot of their products online, and GNC got a slow start in competing effectively in that realm.
Outdated store footprint
That issue is coupled with the costs associated with the company’s massive and in some ways outdated store footprint. GNC had shuttered 200 stores by the end of 2018 and had targeted as many as 900 more of its more than 3,000 company owned and franchise outlets for closure. Many of those stores were located in shopping malls which were struggling even before the pandemic closures.
According to Bloomberg, GNC has been withholding rent on some of its locations while it tries to restructure its debt. The company’s debt stood at slightly less than $1 billion at the close of the first quarter.
The loan the company is reportedly trying to secure is a so-called ‘debtor-in-possession’ loan, a type of bridge financing companies use to continue to operate as they enter into Chapter 11 bankruptcy proceedings. The potential financing partner has not been named, but speculation in late last year had it that Harbin will eventually acquire all of the assets of GNC and take the company private.