Multi-level marketers squeezed in the loan market

NEW YORK, April 10 (LPC) - Loans for multi-level marketing (MLM) companies dropped in the secondary market amid growing concerns among investors about the business model during a period of record employment in the US and increasing scrutiny on workplace practices.

Skincare products seller Rodan & Fields’ US$600m term loan B (TLB) was quoted at 84.5-88.5 on April 5 dropping a point following its downgrade by ratings agency Moody’s Investors Service, according to data from LPC, a unit of Refinitiv.

Isagenix, a company that sells dietary supplements, meanhile, saw its US$375m TLB quoted at 84-86 on Tuesday, a sharp decline from 89-90.5 quoted on April 1, LPC data showed.

As of December 31, business development company CION Investment Corp holds a US$14.5m position in Isagenix, Crescent US$6.8m and Main Street Capital US$6.3m, representing 0.76%, 1.36%, and 0.27% of the respective portfolios, according to LPC’s BDC Collateral.

The MLM business model, which derives its revenues from a non-salaried workforce, relies on constantly recruiting new staff. Given its variable and unpredictable compensation levels, turnover is is usually high.

“MLM companies succeed on the quality of the salesforce and you need a lot of people to sell the product,” said Chedly Louis, a senior credit officer at Moody’s Investment Services.

MLM companies are operating in an increasingly competitive labor market as the US unemployment rate hovers around 4%, the lowest it has been since the turn of the Millennium.

“What is negatively impacting the industry at the moment is enrollment. It is difficult to recruit today because there is nearly full employment. You’ve got to keep the salesforce motivated with new products and provide an attractive incentive structure,” Louis said.

Despite the current challenges, loan investors are still open to the sector. Legal services provider LegalShield managed to clear a US$205.4m total debt package to fund a dividend last month with the first-lien portion pricing at 325bp over Libor and 98.5 OID.


The growth of the so-called “gig economy” within the last decade has meant MLM companies are in a bigger competition with international firms, such as Uber and Lyft, which also tout the benefits of flexible working arrangements.

Rodan & Fields saw a decline in its enrollment recently and has invested heavily in its digital services, which is likely to hurt the company’s deleveraging plans, Moody’s note says.

“Rodan & Fields was growing so rapidly, that it was difficult for the company to scale support for the sales consultants,” Louis said.

The expanding gig economy has attracted attention from US lawmakers seeking to better regulate workplace practices and reclassify independent contractors in order for them to qualify for benefits afforded to full-time employees.

Last year, a number of Democratic politicians vying for the US presidency co-sponsored legislation extending rights to workers in the gig economy. These included Senators Bernie Sanders, Elizabeth Warren, Kirsten Gillibrand, Corey Booker and Kamala Harris.

The Direct Sellers Association, a lobby group for MLM companies, fears that the sector will be swept up in reforms to workplace practices in the gig economy and is pushing for legislation to distinguish direct sellers as independent contractors in 2019. (Reporting by David Brooke. Editing by Michelle Sierra and Jon Methven)