Summit’s Airborne Suffers From Bad Health

For Airborne Health, the bad news is contagious. Over the course of Summit Partners’s ownership of the Florida-based dietary supplement maker, the company’s financial strength has deteriorated. Last week, Standard & Poor’s downgraded the corporate family rating on the company’s $153 million of debt. The report accompanying the downgrade, from ‘CCC+’ to ‘CCC,’ with negative outlook, cites a long list of headwinds.

Earlier this year, the business violated covenants on its debt and failed to obtain amendments, causing it to lose access to its revolving credit facility. As of June 25, the company still hadn’t obtained amendments, which means it’s still cut off from its revolver, leading to the downgrade.

Still, Airborne Health’s difficulties most likely won’t infect Summit Partners’s sixth fund. The firm recouped much of its initial investment in Airborne Health through a $180 million recapitalization in 2006. Summit Partners paid itself a $73.5 million dividend, a sum Moody’s Investor Service called a “substantial part of the original investment.” The firm used the remaining $83 million to pay down debt.

Summit Partners purchased its stake in Airborne Health in 2005. The firm declined to comment.

Airborne Health’s difficulties stem from a number of factors, according to S&P. The company is highly levered, with debt amounting to nearly 7x cash flow as of December 2007, according to S&P. Its products are concentrated in a handful of offerings, all sold under the Airborne brand name. Further, with around $120 million in net sales for the fiscal year ending April 30, Airborne Health is a small fish in the massive $4.5 billion market for over-the-counter health products.

The worst blow came early this year, when Airborne Health settled a class-action lawsuit accusing the company of false advertising. The company, operating in the lightly regulated market for dietary supplements, claimed Airborne-branded products could ward off the cold and the flu, even though there was no research backing up the claims. As part of the settlement, the company denied wrongdoing, but it agreed to pay $23.3 million and in so doing suffered damage to its brand.

“We are concerned that the negative publicity associated with the recent settlement disclosure may further contract the already-small sales base,” Standard & Poor’s credit analyst Bea Chiem wrote in a recent report.

The firm unsuccessfully tried to sell the company in November of 2006, when it hired Sawayas Segalas & Co. to auction the company. The business, which had around $200 million in annual sales at the time, was expected to garner $350 to $400 million.