Debt and Covenants

Which EBITDA the ratios are measured on

Herbalife refinanced its secured debt in April 2026 and ended the trade with gross debt about $60 million higher than it began, near $2.10 billion. The ninth amendment to the credit agreement that accompanied it also reset the terms on which leverage is measured and capital may be returned. Every leverage ratio in Herbalife's covenant stack is struck on Credit Agreement EBITDA of $744.0 million for the twelve months to March 2026 — $75.6 million above the company's own adjusted EBITDA of $668.4 million, which itself excludes $36.6 million of FY2025 technology cost while the capitalised remainder of the same $357 million programme amortises inside a depreciation line EBITDA removes by construction — and the 2.49 times ratio that measure produces is what cleared the 3.00:1.00 gate the ninth amendment installed for the restored $400.0 million restricted-payments basket, on a base whose FY2026 India GST mismatch is now guided to cost $20-25 million. [1][2][3][4][5][6]

Herbalife reports leverage of 2.7 times gross and 2.1 times net at March 31, 2026 [7]. Both are computed on Credit Agreement EBITDA, a measure the company discloses and reconciles: for the twelve months to March 2026 it was $744.0 million, against adjusted EBITDA of $668.4 million and unadjusted EBITDA of $617.7 million [8]. The $75.6 million bridge from adjusted EBITDA is mostly share-based compensation ($43.1 million) and inventory write-downs ($20.4 million) [9].

There is a second definitional point that is easier to miss. Both the credit agreement and the notes indenture cap the cash that may be netted against debt at $250.0 million [10][11]. Herbalife held $451.2 million of cash at March 31, 2026 [12]. The net leverage ratio the company began publishing in the first quarter of 2026 nets all of it [13]; the documents net $250.0 million of it. The gap is about a quarter of a turn.

Source: derived from Credit Agreement total debt of $2,044.6 million, cash of $451.2 million and the three earnings measures reconciled in the June 2026 corporate overview [14], with the netting cap from the credit agreement [15].

None of this is misreporting — the covenants genuinely run on Credit Agreement EBITDA, so 2.7 times is the correct number for testing compliance. It matters for a different purpose. A reader comparing Herbalife's leverage to a peer, or capitalising it into a valuation, is looking at something closer to 3.1 times gross and 2.4 times net on the company's own adjusted measure, and 3.3 times gross on unadjusted EBITDA.

The distance between those measures is 0.49 turns. On the same quarter's $2,044.6 million of Credit Agreement total debt [16], net leverage as the documents define it is 2.41 times on Credit Agreement EBITDA, 2.68 times on adjusted EBITDA and 2.90 times on unadjusted EBITDA — the most and the least generous reading of one balance sheet, half a turn apart. The technology add-back carries a price in the equity as well. At the 4.3 times enterprise value to adjusted EBITDA the report carries (Valuation Arithmetic), the $36.6 million of FY2025 technology add-backs is worth roughly $157 million of enterprise value [17], about $1.52 a share against a $12.18 price.

The strongest facts against reading that spread as anything more than a measurement question are on the record. Herbalife discloses and reconciles Credit Agreement EBITDA in full each quarter [18], and every technology add-back sits on its own labelled line — amortisation of SaaS implementation costs, expenses related to the Technology Realignment Program, and digital technology program costs [19]. The binding 4.00:1.00 gross test would need Credit Agreement EBITDA to fall 29%, to about $525.5 million; the worst year of the recent decline, 2023, produced $670.1 million [20], $144.6 million above that breach point. The spread is a measurement fact, not a solvency one.

What the documents now permit

The ninth amendment's restricted-payments basket — the pool from which Herbalife may pay dividends or repurchase shares — was reset from $100.0 million to $400.0 million, plus half of consolidated net income earned from January 1, 2026, replacing an accrual that had been running from April 2024 [21]. The leverage gate for drawing on it was loosened at the same time, from 2.50:1.00 to 3.00:1.00 of pro forma total net leverage [22]. Measured as the agreement defines it — total debt of about $2.10 billion less the $250.0 million of nettable cash, over $744.0 million of Credit Agreement EBITDA — that ratio is about 2.49 times [23]. Herbalife therefore has roughly $400 million of documented capacity to return capital today, against a market capitalisation near $1.26 billion.

That capacity is unused by choice. The board's $1.5 billion repurchase authorisation expired February 9, 2024 with $985.5 million unused, and no shares have been bought in the open market in 2023, 2024, 2025 or the first quarter of 2026 [24][25]. The intention behind that is also on the record. Asked directly on the first-quarter call whether the completed refinancing changed capital allocation priorities, the chief financial officer said it did not: "My number one priority is still to get our gross debt down to $1.4 billion by 2028, which would get our net debt below $1 billion" [26]. The goal was first framed in 2025 as reducing debt by $1 billion between mid-2024 and the end of 2028, with debt repayment named as the primary use of cash after internal investment [27].

What the April 2026 refinancing exchanged

In April 2026 Herbalife swapped $1,165 million of expensive secured debt for $1,225 million of cheaper secured debt. The coupon on its secured notes fell 450 basis points, cash interest falls roughly $45 million a year, and gross debt rose about $60 million. The loan documents behind the trade also quadrupled the basket that permits dividends and buybacks, to $400 million — capacity the company has not used and does not currently plan to.

The transaction had two legs, both closing April 29, 2026. Two wholly owned subsidiaries issued $800 million of 7.750% senior secured notes due May 1, 2033 [28], and a ninth amendment to the 2018 credit agreement replaced the existing facilities with a $225 million Term Loan A and a $425 million revolver, both maturing April 29, 2031 [29]. The proceeds, plus a $200 million draw on the new revolver, repaid the $365 million term loan B and redeemed all $800 million of the 12.250% senior secured notes due 2029 [30][31].

The 12.250% notes were issued in April 2024, alongside a term loan B priced at SOFR plus 6.75% and sold to lenders at a 7.00% discount [32][33]. The term loan carried a weighted-average rate of 11.64% at the end of 2025 [34], and total interest expense reached $214.4 million in 2025 against $481.0 million of operating income [35]. The notes were callable only at 106.125%, so redemption ran to about $853 million, including a $49.0 million call premium and roughly $4 million of accrued interest [36][37].

Sources: FY2025 Form 10-K, Note 5 Long-Term Debt [38]; Form 8-K dated April 29 2026 [39]; Q1 FY2026 Form 10-Q, Note 15 [40].

Adding issuance costs of about $15 million on the notes and about $8 million on the facilities [41], the cash cost of the transaction was roughly $72 million against a saving management puts near $45 million a year [42] — a payback under two years. The accounting cost lands separately and sooner: Herbalife has told investors to expect a preliminary loss on extinguishment of approximately $95 million in the second quarter of 2026, being the $49.0 million premium plus the write-off of unamortised discount and issuance costs on both retired instruments [43]. That charge sits below the operating line and outside adjusted EBITDA, but it is the second such write-off in three years.

Sources: FY2025 Form 10-K, Note 5 Long-Term Debt [44][45][46]; Q1 FY2026 Form 10-Q, Note 15 [47]. Balances before are at March 31 2026; after, at April 29 2026.

The $45 million reconciles from the coupons alone. The three fixed-rate instruments cost $139.1 million of cash coupon before the deal and $103.1 million after, a $36.0 million reduction that comes entirely from the secured notes. On the floating leg, the margin on the refinanced $365 million fell 375 basis points, worth $13.7 million, offset by the cost of the extra $60 million borrowed — leaving about $9 million and a total near $45.5 million. The chief financial officer described the same arithmetic on the first-quarter call, citing a 450 basis point coupon reduction and 300 and 375 basis point spread reductions on the revolver and term loan [48].

Set against what the business earns, the change is legible. Cash interest paid in 2025 was $205.7 million on operating cash flow of $333.3 million [49] — the business generated about $539 million before paying its lenders and kept 62% of it. On the post-refinancing coupon run-rate of roughly $137 million, it would keep 75%.

Sources: FY2025 Form 10-K, Consolidated Statements of Income [50]; FY2023 Form 10-K, Consolidated Statements of Income for 2021 and 2022 operating income [51] and Note 5 Long-Term Debt for 2021 and 2022 interest [52].

Interest took 21% of operating income in 2021, 57% in 2024 and 45% in 2025. Applied to 2025's operating income, the post-refinancing cash run-rate would be about 28%.

Where the maturities sit

The maturity profile now runs past 2033 for the secured notes, and the schedule after the refinancing is set out in the opening chapter (Business and Balance Sheet).

The extension applies to the secured notes and the bank facilities. The $277.5 million of 4.25% convertible notes still mature June 15, 2028 and the $600 million of 4.875% senior notes still mature June 1, 2029 [53][54]. The convertibles are not an equity option in any practical sense at present: the conversion price is about $16.98 against a share price of $12.18, and Herbalife must settle the principal in cash regardless [55]. They are a $277.5 million cash obligation dated June 2028.

The 2031 maturity on the Term Loan A and revolver is conditional. The credit agreement pulls it forward to 182 days before the convertibles mature — mid-December 2027 — if more than $250.0 million of those convertibles is still outstanding on that date and either first lien net leverage exceeds 2.00:1.00 or total net leverage exceeds 3.50:1.00; a parallel test applies 182 days before the 2029 senior notes mature if more than $300.0 million of them remains [56][57]. The first limb of each test is already met — $277.5 million and $600 million are both above the thresholds — so the bank maturities turn on the leverage limb. On the numbers below Herbalife sits comfortably inside both, and the amendment loosened them (the convertible test was previously a $100.0 million balance and 1.50:1.00 first lien net leverage) [58]. But the tests are measured on those specific dates, which makes the 2027 and 2028 leverage position a live matter rather than a formality.

Covenant headroom

The Term Loan A and revolver carry three maintenance tests and, for the revolver alone, a minimum liquidity floor: total leverage no higher than 4.00:1.00, first lien net leverage no higher than 2.50:1.00, fixed charge coverage no lower than 2.00:1.00, and liquidity of at least $200.0 million [59][60]. Fixed charge coverage is defined simply as Consolidated EBITDA over cash interest [61], which the lower coupon has made far less demanding.

Source: derived from the covenant levels in the amended credit agreement [62], applied to post-refinancing debt of about $2.10 billion and trailing Credit Agreement EBITDA of $744.0 million [63]; the fixed charge coverage line uses the post-refinancing cash coupon run-rate of about $137 million.

Total leverage is the binding test of the three, and the 29% fall in Credit Agreement EBITDA it would take to reach the 4.00 times limit is set out above. Liquidity is the tightest of the four in relative terms: with $200 million drawn and a $45 million letter of credit outstanding, about $180 million of the revolver was available at closing [64], so the $200 million floor depends on accessible cash rather than the facility alone.

The claim on free cash flow

Getting from about $2.10 billion of gross debt to $1.4 billion means repaying roughly $700 million in the ten quarters from mid-2026 to the end of 2028 — about $280 million a year. Free cash flow in 2025 was $252.9 million [65]; with the interest saving phasing in, something near $290 million is the reasonable run-rate if adjusted EBITDA lands inside the $675–705 million guided for 2026 [66]. The plan is arithmetically achievable and it consumes essentially all of it.

The composition is largely fixed. The $200 million revolver draw, the $277.5 million of convertibles maturing in June 2028 and about $28 million of Term Loan A amortisation account for roughly $505 million of the $700 million. The remaining $195 million or so has to come from voluntarily retiring part of the 4.875% senior notes, which are redeemable at par from June 2026 [67] — and which would also clear the second springing-maturity test if the balance fell below $300.0 million [68].

The read that follows from all of this: the refinancing was a good trade on its own terms and a modest one in aggregate. It reduces the lenders' annual claim on operating income by roughly $45 million and pays for itself inside two years, but it did not deleverage — gross debt rose about $60 million, and the transaction's own costs consumed more than a year of its benefit. For an equity valued at less than half the enterprise, the case is most sensitive to where free cash flow goes rather than to the covenant position, which is loose. Management has committed close to all of it — about $280 million a year against a run-rate near $290 million — to the other side of the capital structure through 2028, so on the current plan the equity is paid by debt falling rather than by cash coming out.

The strongest fact against reading that as a constraint is that the deleveraging is working and compounding. Gross principal has fallen from $2,581.1 million at the end of 2023 to $2,044.6 million at March 2026 [69][70], and if 2026 adjusted EBITDA reaches the guided midpoint, gross leverage falls toward 2.7 times without a dollar of repayment. Debt retired at par today is worth more to the equity than the same cash returned at $12.18 if the operating recovery holds. Two things would change the read. Credit Agreement EBITDA sustained below about $600 million would move the 4.00 times test from remote to within one bad year, and would put both December springing tests in play. A repurchase authorisation announced before gross debt reaches $1.4 billion would say that management has re-read its own priority — and would draw on a basket the April amendment deliberately made four times larger.