Moody's upgrades Fitness International's CFR to B3; outlook stable – Moody's

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New York, June 29, 2022 — Moody’s Investors Service, ("Moody’s") upgraded Fitness International, LLC’s ("Fitness International") Corporate Family Rating ("CFR") to B3 from Caa1, Probability of Default Rating to B3-PD from Caa1-PD, and first lien bank credit facilities ratings (revolver and term loans) to B2 from B3. The outlook is stable.

The CFR upgrade to B3 reflects Moody’s expectation that operating performance including membership trends will continue to recover in 2022 and 2023 as the threat of the coronavirus pandemic subsides. Membership and revenue as of May has already recovered to the mid to high 80% of the pre-pandemic level and Moody’s  expects revenue will continue to recover to the low 90% of pre-pandemic levels in fiscal year 2022 ending in December and fully recover by the end of FY2023. Lease adjusted debt-to-EBITDA leverage is about 5x for the LTM period ended March 31, 2022 and Moody’s expects leverage will decline and approach 4x by the end of FY23 due to a continued earnings recovery and some voluntary debt repayment. Moody’s also expects the company to maintain adequate liquidity over the next year including positive free cash flow.

The company’s adequate liquidity is supported by an approximate $359 million cash balance at March 31, 2022 and access to an undrawn $400 million revolver due January 2025 ($362 million availability net of letters of credit). Additionally, Moody’s expects free cash flow to exceed $100 million (excluding any required tax distributions) over the next year due to higher earnings and moderation of deferred rent payments. These cash sources will provide ample coverage of the $48 million per annum of required amortization on the term loan A (required amortization will increase to about $72 million in 2023) as well as funding additional voluntary repayment of debt in FY22. Its financial maintenance covenants (a maximum leverage test and a minimum fixed charge coverage test) will resume on September 30. The company’s $250 million minimum liquidity covenant will end upon delivery of the compliance certificate for the September 30, 2022 reporting period. Given the expected voluntary debt paydown and continued recovery in operating performance, Moody’s expects the company will be able to amend the maintenance covenants if needed in FY22, and thus, expect compliance with the covenants over the next year. Furthermore, the company has no meaningful maturities until 2025 aside from the sizable term loan amortization.

Moody’s took the following rating actions:

..Issuer: Fitness International, LLC
…. Corporate Family Rating, Upgraded to B3 from Caa1
…. Probability of Default Rating, Upgraded to B3-PD from Caa1-PD
….Senior Secured 1st Lien Revolving Credit Facility, Upgraded to B2 (LGD3) from B3 (LGD3)
….Senior Secured 1st Lien Term Loan A, Upgraded to B2 (LGD3) from B3 (LGD3)
….Senior Secured 1st Lien Term Loan B, Upgraded to B2 (LGD3) from B3 (LGD3)

Outlook Actions:
..Issuer: Fitness International, LLC
….Outlook, Changed To Stable From Positive

Fitness International’s B3 CFR broadly reflects its high leverage with Moody’s lease adjusted debt-to-EBITDA leverage of about 5x for the trailing twelve months ended March 31, 2022. Moody’s expects debt-to-EBITDA leverage to continue to decline and approach 4x over the next year due to a continued earnings recovery as well as some voluntary debt paydown. The rating also reflects Fitness International’s geographic concentration in California and Florida and growing competition from technology-based fitness services that are not tied to a facility. Furthermore, the rating is constrained by the highly fragmented and competitive fitness club industry with high attrition rates, Fitness International’s positioning in the industry’s more pressured mid-tier price point, as well as exposure to cyclical shifts in discretionary consumer spending. However, the rating is supported by the company’s well-recognized brand name, position as the largest non-franchisee fitness center by number of clubs, as well as consumers’ increased awareness of the importance of health and wellness.

Moody’s regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Although an economic recovery is underway, its continuation will be closely tied to containment of the virus. As a result, there is uncertainty around our forecasts.

Fitness clubs have sensitive customer data including information related to health, workout schedules, and credit cards. Protecting data security is thus important to attracting and retaining customers and increases operating costs. Rising labor costs are a credit negative issue that could raise operating costs and weaken service levels by limiting club staffing. Demographic and societal trends toward health and wellness are favorable social factors supporting demand growth, but growing competition from technology-oriented workouts is likely to weaken membership for facilities-based fitness providers unless they invest to broaden their service offerings.

The company is wholly-owned by founding members and the Seidler family. Financial policy is expected to be aggressive including high leverage. The new investor group that participated in the preferred stock offering in 2021 is viewed positively as it demonstrates external support for the company’s strategy and recovery prospects. Prior to the coronavirus pandemic in 2020, the company had been proactively paying down debt and Moody’s expects the company will resume prioritizing debt repayment after earnings recovery post the pandemic.

Moody’s views environmental risks as low.


The stable outlook reflects Moody’s view that debt-to-EBITDA leverage will decline to approaching 4x over the next year due to continued earnings recovery and some voluntary debt paydown. The stable outlook also reflects Moody’s expectation for adequate liquidity with at least $100 million of free cash flow (excluding any required tax distributions) over the next year.

Ratings could be upgraded should membership levels, operating performance, credit metrics and liquidity continue to improve. Quantitatively, Moody’s adjusted debt-to-EBITDA sustained below 4.5x along with good liquidity and good free cash flow would be necessary for an upgrade.

The ratings could be downgraded if operating performance does not improve as expected, there is renewed decline in membership levels, or rising labor or other operating costs weaken the EBITDA margin. A downgrade could also occur if liquidity deteriorates or debt-to-EBITDA leverage sustained above 6x.

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at Alternatively, please see the Rating Methodologies page on for a copy of this methodology.

Fitness International, LLC is the largest non-franchised fitness club operator in the United States with about 731 clubs in 27 US states, the District of Columbia, and 2 Canadian provinces under the LA Fitness, City Sports Club and Esporta Fitness brand names. Common equity in the company is wholly owned by founding members and the Seidler family. Revenue for the LTM period ended March 31, 2022 was about $1,890 million.


For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on

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Joanna O’Brien
Vice President – Senior Analyst
Corporate Finance Group
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