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Rating action

Scope Ratings GmbH (Scope) has today downgraded the issuer rating of German direct-selling company LR Health & Beauty SE (LR) to C from BB-. Scope has also downgraded the senior secured debt rating to C from BB-. All ratings have been placed under review for a possible downgrade due to the immediate risk of Default. Scope's objective is to resolve the under review status as soon as there is clarity on the standstill agreement, including the deferred payment and the covenant breach.

The downgrade and placement under review for a possible downgrade follows LR's announcement on 20 October 2025¹ that it has potentially breached its leverage covenant and has entered into standstill discussions with an ad hoc group of bondholders. Scope assesses the company’s financial risk profile as extremely weak, following a sharp deterioration in EBITDA in Q3 2025 and deterioration in liquidity. As a result, the company decided to prioritize operations in the interest of all stakeholders and to defer interest payments which translates into a high likelihood of an upcoming Selective Default under Scope’s Credit Rating Definitions.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

On 20 October 2025, LR announced that it has potentially breached its financial covenant as of 30 September 2025, with a net debt/EBITDA estimated at 5.5x versus the permitted threshold of 4.5x given a sharp deterioration in EBITDA in Q3 2025. Guidance remained relatively stable until August 2025, when full-year EBITDA was lowered slightly. However, in October 2025, management drastically reduced the EBITDA guidance to EUR 17m-20m, which represents a strong decline from the 2024 reported EBITDA of EUR 27m.

A covenant breach constitutes a technical event of default under the bond terms, granting bondholders acceleration rights following a grace period. Management has entered into discussions with an ad hoc bondholder group to negotiate a standstill agreement under which interest payments will be deferred and bondholders will temporarily waive default rights related to both the covenant breach and the missed payments. The standstill is intended to provide time for a comprehensive assessment of the financial position and development of a restructuring plan. In parallel, the board has appointed an independent firm to prepare a restructuring opinion recommending measures to strengthen the company’s operations and capital structure. The standstill negotiations are an abrupt escalation in credit risk compared to the initial covenant waiver request.

The standstill agreement is expected to result in a loss of value for creditors compared to the original bond terms due to the coupon deferral, in absence of meaningful compensation for such deferral. If the standstill proves unsuccessful, the company is likely to miss the coupon payments and may require emergency funding from creditors or shareholders. Both scenarios could potentially qualify as a Selective Default under Scope’s Credit Rating Definitions.

Business risk profile: B+ (revised from BB-). LR's business risk profile has deteriorated due to the weakened operating profitability. While the company retains certain structural advantages – including a network of around 220,000 sales partners, solid positioning in health-related niche segments and a largely variable cost base – these have proved insufficient to offset macroeconomic headwinds and internal execution challenges.

The company's direct-selling model, while historically resilient, is increasingly pressured by muted discretionary spending, more competition from alternative retail formats and operational constraints. Despite product launches and the appointment of experienced management (CEO Jörg Körfer), near-term earnings recovery remains highly uncertain.

Operating performance deteriorated sharply in the third quarter, marking a turning point well below expectations. Management revised down its guidance twice – first lowering the 2025 EBITDA target from growth over the EUR 27m reported in 2024 down to EUR 24–27m in August, and again in October to EUR 17–20m. At the midpoint, this implies more than a EUR 12m gap compared to Scope’s October 2024 base-case forecast of EUR 31m. The underperformance reflects persistently weak consumer sentiment in Western Europe (notably Germany, down 17.3% in Q3), underwhelming product launches (including the September 2025 fragrance line), execution setbacks linked to the 2024 career plan redesign, elevated bonus cost ratios and certain one-off items.

Financial risk profile: C (revised from B+). The downgrade reflects a pronounced deterioration in all credit metrics following the company’s dismal Q3 performance and downwardly revised EBITDA guidance for the full year 2025.

Leverage has worsened significantly, with debt/EBITDA* expected to rise to around 8.9x in 2025, compared with 5.7x in 2024 and 4.6x in 2023. Funds from operations to debt is projected to turn negative at about –2% in 2025, after remaining positive at around 6% in 2024.

Debt-servicing metrics have also deteriorated. EBITDA interest coverage declined to 1.8x in 2024 and is forecast to fall further to around 1.1x in 2025, well below the 2.0x level typically consistent with sustainable debt servicing. Annual interest expense of around EUR 15m places a significant burden on the weakened earnings base. Even under management’s recovery assumptions, coverage is expected to remain below sustainable levels at 1.4x in 2026 and 1.6x in 2027, underscoring a persistent structural inability to meet interest obligations without either material deleveraging or substantial earnings rebound.

Liquidity: inadequate, -2 notches (revised from adequate). Liquidity has deteriorated to critical levels and is deemed inadequate. Scope estimates that cash has been reduced significantly from the EUR 13m reported as of June 2025 (down from EUR 20m at year-end 2024) and it is unlikely that the company has the capacity to make its upcoming coupon payments in Scope’s view. It has therefore started negotiations with bondholders for a standstill.

The deterioration reflects substantially weaker operating performance combined with elevated working capital requirements. Free operating cash flow has turned deeply negative, projected at around -15% of debt in 2025 (EUR 23m), and is expected to remain negative through 2027. The combination of persistent cash burn, constrained liquidity and the covenant breach underscores the company's inability to service its debt obligations without substantial restructuring or external support.

Supplementary rating drivers: credit-neutral (unchanged). Although supplementary rating drivers are credit-neutral, Scope's assessment of the company's business and financial risk profile reflects governance concerns relating to the company’s recent request for a covenant waiver and standstill negotiations. Specifically, there is a lack of transparency (ESG factor: credit-negative governance factor) around creditor consent, the detailed terms of the standstill agreement, and the company's current liquidity, and Scope remains concerned about the timeliness of such information.

One or more key drivers of the credit rating action are considered an ESG factor.

Under review for a possible downgrade

The under review for a possible downgrade reflects the high likelihood of a Selective Default under Scope’s criteria, driven by the proposed standstill agreement. Should the standstill agreement fail to materialise, a Selective Default would also likely occur due to non-payment, as the company would face bond acceleration under the standard event of default provisions.

Scope's objective is to resolve the under review status as soon as there is clarity on the standstill agreement, including the deferred payment and the covenant breach.

The upside scenarios for the ratings and Outlooks are (individually):

1. Full remediation of the covenant breach and sustained compliance with all financial covenants
    
2. Standstill agreement that does not lead to less favourable terms or a loss of value compared to the original terms of the affected debt which does not constitute a Selective Default

The downside scenarios for the ratings and Outlook are (individually):

1. Inability to reach an agreement with bondholders for a standstill
    
2. Standstill agreement with less favourable terms or a loss of value compared the original terms of the debt which would constitute a Selective Default

Debt ratings

Scope has downgraded the senior secured debt rating of LR Health & Beauty SE to C from BB-, in line with the issuer rating, and places it under review for a possible downgrade.

On 19 February 2024, LR Health & Beauty SE placed a senior secured bond (ISIN: NO0013149658) with a nominal issue volume of EUR 130m and issue proceeds of around EUR 125m.

Environmental, social and governance (ESG) factors

Scope’s ESG assessment of LR identifies governance as a key factor. According to Scope, governance concerns arise from limited transparency around creditor consent, the detailed terms of the standstill agreement, and the company's current liquidity, and the agency remains concerned about the timeliness of such information. This highlights the critical need for improved transparency and financial management to support credit stability.

All rating actions and rated entities

LR Health & Beauty SE

Issuer rating: C/under review for a possible downgrade, downgrade, under review placement

Senior secured debt rating: C/under review for a possible downgrade, downgrade, under review placement

*All credit metrics refer to Scope-adjusted figures.

Rating driver references
1. BREACH OF LEVERAGE COVENANT / NO INTEREST PAYMENT / STANDSTILL NEGOTIATIONS WITH AN AD HOC GROUP OF BONDHOLDERS / APPOINTMENT OF A REPUTABLE FIRM TO SUPPORT A FINANCIAL RESTRUCTURING 

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings, (General Corporate Rating Methodology, 14 February 2025; Consumer Products Rating Methodology, 31 October 2025), are available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Michel Bove, Director
Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 4 November 2024.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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