S&P cuts Fitness International LLC

S&P said it downgraded Fitness International LLC (LA Fitness) to CCC+ from B- with a developing outlook and also lowered the company’s issue ratings to B- from B+. The recovery rating remains 2.

“At the same time, we are removing all of the ratings on the company from Credit Watch, where we placed them with negative implications on March 20, 2020,” said S&P in a press release.

“The downgrade reflects our assumption that LA Fitness will experience a spike in leverage and a significant cash burn rate while gyms are closed and possibly during the early months of re-openings, which could use a substantial portion of the company's liquidity and possibly result in an unsustainable capital structure,” said S&P in a press release.

The company had more than $325 million in cash on hand on April 1, after fully drawing its $400 million revolver. LA Fitness also amended its credit facility on April 7, 2020, to amend and waive certain covenants, S&P said.

“The developing outlook means an upgrade or downgrade is equally likely over the next few months depending on the duration of gym closures, economic conditions, consumer behavior and the company's ability to preserve its liquidity,” the agency said.

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