Troubled waters for Wahoo? GPS and indoor training brand cites “special agreement” after missing payment deadline and getting its credit rating lowered again

One of the biggest credit ratings agency has sounded the alarm for Wahoo’s debts, after the company missed payment months after being warned that such a scenario could be on the horizon; but Wahoo has claimed that it has a “special agreement” with its lenders regarding the delay.

The latest credit downgrade for the Georgia-based tech and fitness company comes from Moody’s Investors after missed debt service payment due 31 March 2023 and the expiration of the applicable grace period, SGB Media reports.

Earlier this year, we reported that S&P Global Ratings, another leading ratings agency downgraded Wahoo’s credit rating, warning that it believes that unless the company can raise further funding or restructure its debt, its finances as they currently stand are “unsustainable.”

However, road.cc has received a statement from Wahoo Fitness, addressing this development: “Wahoo has made a special agreement to delay our scheduled interest and principal payment with our lenders for our long term note and revolving credit facility.

“The credit agencies define a default - as any missed interest or principal payment, regardless of any prearranged agreement. We are actively collaborating and moving forward positively with the support of our lenders and our private equity partner Rhone - to create a new capital structure that meets the long term needs of the business.

“In the meantime, Wahoo remains committed to providing the best products and experiences for our customers and remaining true to our mission of building a better athlete in all of us.”

> Ratings agency downgrades Wahoo, warning company’s finances are “unsustainable”

According to SGB Media’s report, Moody’s has lowered Wahoo’s credit ratings on three fronts, with the company having a setback of $30 million recurring line of credit as well as a $225 million principal loan, with the agency stating that “the outlook is negative”.

Wahoo Fitness was founded in 2009, and has since become one of the biggest cycling GPS computer brands, along with boasting a line of popular indoor training products. However, it has reportedly found itself in troubled waters since last year.

S&P had previously downgraded the company’s ratings last September as its earnings were sharply below S&P’s expectations, before warning of liquidation in January this year, and finally dropping the rating to a D from a CCC- in April.

Both Moody and S&P make up two of the ‘Big 3’ credit ratings agencies, and both of them raising concerns perhaps does not bode well for Wahoo.

> Cycling industry layoffs: Strava and Wahoo cut 15% of workforce

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Moody’s said in its analysis, “[Wahoo] 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.”

The rating agency added: “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.”

The company, which besides its Kickr range of smart trainers and bikes also sells products including the Elemnt Bolt range of bike computers and smartwatches, and in 2019 bought pedal brand Speedplay and indoor training platform The Sufferfest – subsequently rebranded Wahoo Systm – was among those that were boosted during 2020 and 2021 as lockdowns around the world saw many cyclists switch indoors for their training.

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Moody’s latest downgrade of Wahoo’s credit rating is a further sign of the pressures currently facing the cycling industry, with Wahoo and fitness tracking giants Strava reported to have cut their workforces by 15 per cent late last year, and US-based bike firm Specialized confirming in January that it was slashing one in eight jobs worldwide.

In January, Halfords, the UK’s biggest bicycle retailer, said that the domestic cycling market had contracted by 20 per cent over the past year. A month later, the Bicycle Association also observed the sales slowdown since the Covid bike boom in its annual report, with sales of bikes in the UK dropping to the lowest level in two decades.

> Pon Bike sales hit £2 billion, doubling from last year

However, with reports of headwinds, some cycling manufacturers have enjoyed a good start to the year, indicating that it may not be all doom and gloom for the industry.

Earlier this week, we reported that Pon Bike, the world’s largest bicycle manufacturer, hit £2 billion sales, doubling its turnover from last year. CEO Smalbraak said that his company has already started the year with full order books for its bike division.

In February, there was also the news of Shimano, the world’s largest bicycle component manufacturer, achieving a record sales of £3.2 billion, despite slowing demands. So maybe there’s still time for Wahoo to avoid the debt net and survive this post-pandemic onslaught on the bike industry...