NBTY's dominant competitive position in the vitamin, mineral and nutritional supplement industry is an advantage for the Bohemia, N.Y.-based company as it plans to acquire Rexall Sundown from Royal Numico for $250 million. Moody's Investors Service rated the $375 million credit that is backing the transaction at Ba2. NBTY also has strong pro forma credit metrics, vertical integration, a proven track record from successful integration of past acquisitions and a diversity of customers and products, Moody's states. The Rexall deal is consistent with NBTY's strategy to strengthen its wholesale business by increasing revenues from existing customers, adding new customers and by expanding its product portfolio, according to the ratings agency.
NBTY has good liquidity, but the Rexall transaction will trigger significant pressure on near-term free cash flow, Moody's notes, adding that the company recorded $54 million in free cash flow last year, compared to $70 million over the twelve months ending in March 2002. The rating also reflects continued operating losses in NBTY's U.S. retail businesses and stagnant growth in its Puritan's Pride/Direct Response mail order business. "Mail order revenues have remained relatively stagnant despite a series of acquisitions," Moody's comments, stating that revenues have only increased slightly since acquiring NatureSmart in the fiscal year of 2001 and Nutrition Warehouse in the fiscal year of 2000.
The credit includes a five-year, $100 million revolver; a six-year, $50 million term loan and a six-year, $225 million "B" term loan. Moody's notes strong covenant protection on the deal, including limitations on acquisitions, restricted payments and capital expenditures. Harvey Kamil, president and cfo of NBTY, did not return calls.