Icon Health & Fitness Inc. is getting a serious workout in the loan market.
The company, which manufactures NordicTrack treadmills among other products, is struggling to find buyers for $220 million in debt at terms it’s been offering. The deal would lower costs and help pay down bonds maturing next year, according to three people with knowledge of the matter.
Investors have been reluctant to accept 6.75 percent on a $160 million first-lien loan and 10.75 percent on a $60 million second-lien portion, said the people, who asked not to be identified because the information isn’t public.
The Logan, Utah-based company’s business is vulnerable in part because of its reliance on a few retailers and pricing pressures, according to a July 28 Standard & Poor’s report. Sears Holdings Corp., where sales are plunging, accounts for almost 20 percent of its revenue.
“Having all your eggs in one basket is a risk and Sears being their largest customer has affected them in the last couple of years,” said Kevin Cassidy, an analyst at Moody’s Investors Service. “You want to be diversified and they have been expanding their retail channels and increasing direct sales.”
The company has been cutting its reliance on Sears, which accounted for almost half of its revenue in 2005. It has also expanded its direct sales and e-commerce business to almost 20 percent of its business.
“Icon has worked diligently to diversify its retail customer base, and Sears now represents less than 19 percent of ICON business,” Colleen Logan, a spokeswoman for the company, said in an e-mail Tuesday.
The plan to sell the debt hasn’t been scrapped. Rather, Bank of America Corp., which is leading the loan sale, is looking to restructure the deal, two of the people said.
Thomas Rottcher, a spokesman for Bank of America, declined to comment.
Icon is planning to use the funds to pay down $205 million of 11.875 percent bonds that come due in October 2016, according to a July 28 Moody’s report. It would be prudent for the company to refinance its debt before a possible interest rate increase, according to Cassidy, who has raised the company’s credit rating one level to B2, which is five levels below investment grade.
Icon has been cutting manufacturing costs by shifting production to China and expanding its distribution network, which has helped it improve its operating outlook, Cassidy wrote in the report. But it still remains hamstrung by “significant customer concentration,” he said.
NordicTrack-branded products have an exclusivity contract with Sears that expires at the end of this year, according to the S&P report. The company has decided not to renew the agreement to expand retail distribution of the brand and focus on the direct-to-consumer and e-commerce channels that have been fueling its growth over the last few years, Logan said.