Moody’s Investors Service downgraded Life Time, Inc.’s ratings including its Corporate Family Rating (CFR) to Caa1 from B3 and Probability of Default Rating to Caa1-PD from B3-PD. Concurrently, Moody’s downgraded the rating for Life Time’s existing senior secured first-lien bank credit facility (revolver and term loan) to B3 from B2 and the rating for the company’s senior unsecured notes to Caa3 from Caa2.
Moody’s also assigned B3 ratings to Life Time’s proposed extended senior secured credit facility (revolver and term loan) and a B3 rating to the company’s proposed $750 million senior secured notes due 2026.
The outlook is stable.
Moody’s said in a press release, “The downgrade reflects worsening credit metrics due to continued disruptions from the coronavirus and Moody’s expectation that credit metrics will remain weak over the next year. Despite reopening most of its gyms after the spring lockdown, Life Time had to re-close gyms in certain states in recent months due to state mandates to help contain increasing coronavirus cases. Utilization rates for re-opened gyms, especially in the Northeast, are low, which shows member’s reluctance to go back to gyms because of concerns about coronavirus exposure in the US. As a result, the decline in dues-paying members is quite meaningful since the start of the coronavirus pandemic. Debt-to-EBITDA leverage on a Moody’s lease-adjusted basis was about 16.0x for the LTM period ended September 30, 2020, and Moody’s expects leverage will spike by year-end 2020 to above 25x. Looking ahead, Moody’s expects a recovery for the sector to start in the later part of 2021/early 2022 once a higher share of the public has been vaccinated and the coronavirus pandemic subsides. Moody’s projects lease-adjusted debt-to-EBITDA leverage for Life Time to decline to approaching 10x by year-end 2021 and approaching 7.5x by year-end 2022. This reflects Moody’s assumption that the company’s dues-paying membership count will recover to about 15 percent to 20 percent below its pre-coronavirus level by 2022 and EBITDA will recover to about 15 percent below its 2019 level by year-end 2022.”
Photo courtesy Lifetime Fitness