Health Firm Needs Fast-Acting Relief

Global Health Sciences Inc. is now firmly entrenched in distressed territory, and at least one high yield analyst said it would have trouble rallying.

Privately-held Global's $225 million tranche of 11% unsecured senior notes earlier this month traded in the mid-50s, posting a one-week drop from 60. And unless the company can find financing to replace its current bank facility, the bonds will continue to flounder, said Joel Luton, a high yield analyst at APS Financial Corp.

"If Global announces the refinancing of a bank facility, the bonds will move up because the short-term question is resolved. If they don't and they start hitting against their covenants, the bonds will likely soften even further," Luton said. Luton would not speculate on the point increase if the bonds were to rally.

"The company says that the lead bank, Citibank Corp., has a new relationship manager on its credit facility - and it hasn't helped the situation that the company has violated covenants twice," Luton said.

Global's bank facility was reduced significantly last October to $41 million from $75 million and its maturity date moved to 2001 from 2003. Global drew $31 million to acquire American Ingredients Inc. in December 1998.

Orange County, Calif.-based Global manufactures and distributes sports and performance nutrition, including dietary and nutritional supplements.

Don Lewis, Global's chief financial officer, said "I think all of our bondholders are well-informed about the performance of the company. The market has already responded to the change in the credit rating by S&P [and it] is not having an impact on our bonds."

Luton met earlier this month with Global management, which informed him that it did not expect much improvement in its fourth quarter, probably $8 million to $9 million in EBITDA, he said. "They have to grow their business more," he said.

"Besides supplying to Los Angeles-based Herbalife International Inc. and Experimental and Applied Sciences, they need to find additional customers to buy their product, and that will take time to build up, as well as revenue from them," he said.

An industry source said that Global might be courting New York-based GE Capital Corp. as a potential lender. "They will have a tough time to find [refinancing] through a traditional lender and will have to go to a higher-risk type one, such as GE, as a lender of last resort," he said. GE could not be reached for comment.

A source following the industry said the company was considering an equity investor but it may have difficulty in generating much interest on that front. "I think an equity investor would be reluctant to put any money in this thing if they couldn't get control. Why would someone invest $30 million to $40 million and not have some control?" the source said.

Richard Marconi owns 100% of the company's equity.