S&P Global Ratings affirmed Equinox Holdings debt ratings following a recent refinancing.

Equinox Holdings Inc. refinanced its $150 million revolving credit facility due 2022 with proceeds from a new $76 million revolving credit facility due 2023 (fully drawn) and a $73.9 million term loan B-3 due 2024. The term loan B-3 facility is pari passu with its existing first-lien credit facilities. The company’s parent company, Equinox Group LLC, has also committed a $60 million undrawn equity facility to support Equinox’s liquidity.

S&P affirmed its ‘CCC’ issuer credit rating on Equinox Holdings Inc.
S&P assigned a ‘CCC’ issue-level rating and ‘3’ recovery rating to the company’s new $76 million revolving credit facility and $73.9 million first-lien term loan B-3.

The negative outlook reflects S&P’s belief that the company could face a liquidity shortfall over the next 12 months if it cannot raise additional liquidity in the near term.

S&P said, “The affirmation reflects our expectation that unless the company can enhance its liquidity or materially slow its cash burn, it could face a liquidity shortfall over the next 12 months. Substantial support from the company’s parent, Equinox Group LLC, and lease deferrals and abatements have helped the company maintain liquidity despite significant membership declines and cash burn during the COVID-19 pandemic. It is our understanding that Equinox Group LLC has provided a $60 million equity commitment to Equinox and also has, through affiliate company transactions, provided it with approximately $113 million of liquidity in 2021. As of the third-quarter-ended Sept. 30, 2021, the company reported approximately $157 million of unpaid rent. We assume deferred rent obligations will continue to grow until its memberships, revenue, and cash flow levels are sufficient to begin paying all of its rent in full.

“All of the company’s clubs are fully open across the U.S., but memberships continued declining into the third quarter of 2021 despite easing COVID-19 restrictions. We believe substantial uncertainty exists about where the company’s membership, revenue, and EBITDA base could stabilize and when the company could return to EBITDA and cash flow profitability. As with other gym operators, the COVID-19 pandemic made a significant impact in terms of temporary gym closures, member losses, and memberships placed on hold, leading to significantly lower revenue and a cash burn from operations. Equinox ended the third quarter of 2021 with 232,000 members, down approximately 30 percent from year-end 2019 but down less than 1 percent compared with the prior quarter. However, despite declines in its total memberships, the company’s revenue has grown and its EBITDA has become less negative quarter-over-quarter in 2021 because of members returning from non-dues paying status. We believe there is significant uncertainty around the timing and shape of the company’s revenue and membership recovery, especially with the new Omicron variant that could result in further restrictions and membership declines if it proves to be more vaccine-resistant or transmissible than other COVID-19 variants. It may take several years to return to pre-pandemic levels of revenue and EBITDA. While we believe the company’s high-quality gyms and lifestyle brand still resonate with its core members, we anticipate its high-priced memberships will recover more slowly than low-cost gym memberships, which had lower cancellations and are experiencing a faster recovery despite residual safety concerns.

“The negative outlook reflects our expectation that tough operating conditions will persist and the company will likely face a liquidity shortfall over the next 12 months absent a liquidity-enhancing transaction of some kind.”

Photo courtesy Equinox Holdings