March 24, 2020 / 9:41 PM / 9 days ago

US health clubs become biggest losers as pandemic clears gym floors

NEW YORK, March 24 (LPC) - US health clubs are among the biggest losers in the loan market, as the spreading coronavirus has forced some gym operators to close their doors on government order while patrons adhere to strict social distancing measures and avoid crowded spaces.

A loan for luxury fitness club operator Equinox has fallen to an average bid of roughly 70-72 cents on the dollar this week, down from levels near 100 cents on the dollar, referred to as par, last month, according to two sources monitoring the transaction. Life Time Fitness, which designs and builds multi-use fitness centers, has a term loan quoted at a bid of 69-70 cents this week, down roughly 21 cents from February, sources said.

With US state and city governments enforcing tough restrictions on local businesses, residents are being encouraged to stay indoors to limit the spread of the respiratory virus. With health clubs closed, trainers are hosting online workouts to ensure gym goers can exercise in isolation.

“Gyms’ loans are one of those sectors that was bound to get hit. Add them to oil and gas and services,” one banker said.

San Ramon, California-headquartered 24 Hour Fitness Worldwide has drawn down on all available funds under a US$120m revolving credit facility, according to the Wall Street Journal, joining a growing list of companies that have either drawn on existing revolvers or signed new bank loans to shore up liquidity in the last two weeks.

Companies in the travel, leisure and oil and gas sectors have so far bore the brunt of the pandemic, with airlines and casino operators drawing on bank facilities as holiday cancelations have piled up. And now, fitness centers, which drive revenues from an active member base, could fall victim to a virus that is keeping people away from large gatherings.

Low-cost gym chain Planet Fitness was the latest US health club operator to tap the institutional term loan market, raising a US$590m first-lien loan to support its buyout by private equity firm American Securities in February.

The seven-year loan was offered at 400bp over Libor with a 0% floor on February 7, sources said. Lead arranger Jefferies was able to price the transaction on the tight end of guidance of 400bp-425bp over Libor, and enjoyed what was effectively the final weeks of an investor base clamoring for new leveraged loans.

The loan was sold last month at a discount of 99.5 cents, but has since dropped to an average bid of 77-78 cents on Tuesday, a source said.

Spokespeople for Equinox, Planet Fitness, Life Time Fitness and 24 Hour Fitness were not immediately available for comment.

EQUINOX’S CHOICE

Equinox, known for its higher-priced membership fees and scented towels, has roughly 75% of its health clubs in the affluent New York City metro area and in coastal California, according to a February 24 report from Moody’s Investors Service.

With both regions reporting new cases of the coronavirus this week, investors are concerned the gym chain will have no choice but to remain closed for the foreseeable future, according to sources.

Moody’s also said that for the 12 months ending last September, the company’s adjusted debt to earnings before interest, tax, depreciation and amortization (Ebitda) was approximately 7.8 times for Equinox operations alone. This increases to 8.6 times when including losses from subsidiaries that Equinox funds, according to the ratings firm.

Equinox last tapped the term loan B market for a US$225m incremental transaction to its existing facility in March 2019, Refinitiv LPC reported at the time.

“My gym shut (last) Tuesday. I’m thinking I’ll probably have to break in. Not really any way for me to replicate 600 pound squats at home,” said an investor monitoring fitness centers’ loans, and their operating hours.

Reporting by Aaron Weinman. Editing by Michelle Sierra and Kristen Haunss.

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