WW International, formerly Weight Watchers, has been apowerhouse in the wellness industry for decades. The business haschanged over its 56 years; for two-thirds of its members, digitaltools have replaced the in-person meetings the company was builtaround. Still, the business's primary revenue driver remainssubscriptions to its flagship weight-loss and wellness program.

In 2017, WW was starting to gear up for the launch of a majorprogram innovation, but first the company needed to re-evaluate itsdebt situation. Its earnings before interest, tax, depreciation,amortization, and stock-based compensation (EBITDAS) totaled $258.7million for 2016, and it owed $2.021 billion on an institutionallyheld term loan. The loan had an attractive interest rate, but itwould come due in April 2020, which meant that in two years itwould be a short-term liability. WW also had a $50 millionrevolving credit facility.

The WW team saw that having a leverage ratio above 7x wasclouding perceptions of the company's potential. "We wanted toinvest in the future of the business," says Jarod Greenblatt, vicepresident of financial planning and analysis (FP&A) andassistant treasurer. "We had plans for important innovations, andwe didn't want the debt overhang to get in the way of that."

"Our leverage had been a bit high for years," adds Corey Kinger,vice president of investor relations. "We had frequentcommunication with our debt holders for several years leading up to2017, with the intention of refinancing at the first goodopportunity."

Management made refinancing the debt to extend maturities apriority for 2017 so that the organization could spend 2018 focusedon its new customer program. The company set a short-term goal ofreducing its leverage as quickly as possible, including partiallypaying down the term loan. Greenblatt, who had recently taken onresponsibility for treasury, recognized that the treasury groupneeded a much clearer view of cash flows throughout theorganization.

"We didn't have a very accurate liquidity forecast to basedecisions on," Greenblatt says. "We knew our cash balances,obviously, but we didn't have insights into what was coming so thatwe could optimize our use of cash." That changed when Greenblatttook over the function. "The integration of treasury/cashmanagement and FP&A really benefits the company on both sides,"Kinger says.

"With my FP&A background, I understood how importantforward-looking estimates are," Greenblatt concurs. The treasurygroup started building out a complex model in Microsoft Excel thatwould produce weekly forecasts of upcoming cash flows. "The goalwas to understand how much cash we had on hand and how we couldrepurpose it, whether to pay down debt or use it on some kind ofstrategic transaction," Greenblatt says.

The resulting spreadsheet-based model pulls in data on actualsfrom the company's enterprise resource planning (ERP) system, aswell as specifics on timing of payables from its accounts payable(A/P) system. It also utilizes a revenue model WW had previouslybuilt to understand when cash would be coming in. "We already hadall this data, but we weren't utilizing it for cash management andliquidity management," Greenblatt says.

To gauge the effectiveness of the new forecasts, Greenblatt'steam began reporting each week on how actuals compared to the priorweek's forecast. Senior management relied heavily on these reportsin making capital structure decisions, and within the first quarterafter the new forecasting process was launched, WW was able to makeits first incremental reduction of the term loan, paying down $75million.

The company's business performance was improving, and it waschipping away at its leverage ratio. The treasury group begancoordinating with a cross-functional team to determine how topresent the company's financial story to prospective lenders,shareholders, and credit ratings agencies.

The team maintained theirpractice of holding quarterly discussions with the ratingsagencies, where they pointed out that WW was reducing its leverageratio and that the business was growing as well. "Convincinglenders and ratings agencies that the improvements were sustainablerequired ongoing dialogue with executive leadership and a deepunderstanding of the business," Kinger says. "This dialogue, alongwith our continued business improvement, led to two ratingsupgrades from Moody's and one upgrade from S&P during 2017.Needless to say, this strengthened our position heading into therefinancing."

At the same time, Greenblatt and WW's CFO, Nick Hotchkin, workedto build a syndicate of five banking partners that would supportthe company's refinancing. "We already had strong relationshipswith two of these banks, but we spent a lot of time buildingrelationships with a few new banks," Greenblatt says. "We let themknow right away that our intention was to refinance the debt and wewanted them all to be a part of it. Over the course of 2017, we metwith them regularly to understand what options were available to usas the business continued to perform well."

On its November 2017 earnings conference call, managementintroduced a long-term objective of bringing net debt down to 3.5times EBITDAS, a reduction of more than half. Shortly thereafter,the company launched the refinancing process; Hotchkin and thecompany's CEO participated in the roadshow. Communication was key.So was the company's improved cash forecasting capability. "Thestorytelling, demonstrating the improvement we were seeing, wascritical to helping everyone—debtholders, shareholders, and ratingsagencies—understand that these were realistic aspirations," Kingersays.

All the process changes and communication paid off. In November2017, WW completed a leverage-neutral refinancing of its term loanand revolver. It ended up with a new $1.54 billion variable-rateterm loan due in 2024, $300 million in senior notes due in 2025,and a $150 million revolving credit facility that expires in 2022.The extended terms removed the 2020 debt overhang and the pressureof an impending need to refinance, which enables WW to focus moreenergy on operations and innovation. In addition, the increasedsize of the revolver provides greater financial flexibility.

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Greenblatt says the key to success in this type of project is to"strike while the iron is hot." Companies need to carefully lay thegroundwork in advance, then stay carefully attuned to the rightopportunity. "Business can always turn," he points out, "and younever know if the market will continue to be there. Make sure youunderstand your liquidity and cash flows, understand when your debtis due, and understand what refinancing opportunities are availableto you at any given time. When there is a great opportunity foryour company, take it."

Take it—and then keep looking for additional opportunities. "Wecontinue to reduce our cost of debt," Greenblatt adds. "Since thestart of 2018, we've prepaid part of the refinanced debt, and we'verecently entered some interest rate hedges. It's not a project thatwill end; we have a mentality of continuous improvement of ourleverage ratio."