Dive Brief:

• S&P Global downgraded GNC deep into junk territory following the supplement retailer's disclosure earlier this month that it does not expect to make enough cash from operations to pay its debt.
• Analysts lowered GNC's rating to CC from CCC+ and put it on ratings watch with "negative implications​."
• "We believe conditions for GNC are deteriorating substantially due to the coronavirus pandemic, the anticipated macroeconomic downturn, and the limited access to capital markets," S&P analysts led by Khaled Lahlo said in an emailed press release.

Dive Insight:

GNC's downgrade followed a regulatory filing by the supplement retailer that acknowledged the company does not expect to have the cash to repay some of its debt that matures in less than a year. Because of that, GNC also added "going concern" language to the fling, saying there was "substantial doubt" that it would be able to continue operating over the next 12 months. 

S&P analysts said that, in their view, a default on or restructuring of debt is "inevitable" given that the company admits it does not have the cash to pay it back.

And this is a rough climate for retail companies trying to refinance or restructure their debt, with credit and financial markets under stress as a pandemic batters the global economy. 

GNC's sales over the first nine months of its fiscal 2019 year were down by around $200 million, and its profits turned negative. GNC has been working to pay down its debt. CEO Ken Martindale told analysts in October that the company had paid down $440 million in debt since early 2018, according to a Seeking Alpha transcript. 

The retailer has also been closing hundreds of stores, cutting costs, and trying to stabilize its North American sales, in part by leaning on its loyalty program and digital services like auto-deliver. 

Those efforts now appear insufficient to sustain the company's capital structure, which includes around $706 million in long-term debt. The company's sales in the U.S. and Canada, and worldwide as well, could be further depressed by the spread of COVID-19.

GNC has said it would keep its stores open, with the company saying it believed it had "a unique responsibility to continue to deliver essential immune health solutions in hard-to-reach areas." 

But GNC has still likely been forced to close a significant number of stores as mall operators, including Simon Property Group, Taubman and others, have closed their facilities. Other malls are closing in response to local or state orders. And for those GNCs still open, foot traffic across the country has already declined steeply as consumers follow social distancing guidelines to avoid the virus.