Moody’s raised its debt ratings on Life Time Group Holdings, Inc. due to the owner and manager of fitness and recreational sports centers improving performance, including membership, revenue, EBITDA trends, and steps the company has taken to reduce leverage.
Ratings affected include Life Time’s Corporate Family Rating (CFR) to B2 from B3 and Probability of Default Rating (PDR) to B2-PD from B3-PD. Concurrently, Moody’s upgraded the rating for the company’s first lien credit facilities (revolver and term loan) and senior secured notes to B1 from B2 and the rating for its senior unsecured notes to Caa1 from Caa2. The company’s SGL-3 speculative grade liquidity rating is unchanged. The outlook is stable.
Moody’s said in its analysis, “Life Time’s B2 CFR reflects its high leverage with Moody’s adjusted debt-to-EBITDA in the low 6x for the LTM period ended June 30, 2023. Moody’s expects leverage to continue to decline to the mid-5x range over the next year through earnings growth. The rating is constrained by the company’s aggressive growth strategy and historically high reliance on external financing to support its new club openings, including sale-leaseback transactions, landlord incentives and incremental debt through revolver borrowings. Other credit constraints include Life Time’s moderate geographic concentration and business risks associated with the highly fragmented and competitive fitness club industry, which includes high membership attrition rates and exposure to shifts in consumer discretionary spending and economic cycles.
“However, the rating benefits from Life Time’s focus on a more affluent member base and expanded service offerings relative to most fitness clubs, making it less susceptible to increasing competition from the value-priced fitness clubs. The rating is also supported by the company’s solid asset base from owning a portion of its clubs (roughly 35 percent of the 164 clubs are owned). Monetization of real estate provides an additional option to bolster liquidity if needed and distinguishes Life Time from most other fitness clubs where facilities are primarily leased. Additionally, support is provided by the longer-term positive demographic fundamentals for the industry with increased awareness and focus on fitness and health. Moody’s expects Life Time’s financial policy to be somewhat more conservative than in the past with a focus on reducing leverage because the company is publicly traded following the October 2021 initial public offering.”
Photo courtesy Life Time
