Moody's: Town Sports loan B1

Moody's Investors Service said it assigned a B1 (LGD2, 24%) rating to Town Sports International, LLC's proposed senior secured credit agreement, consisting of a $50 million revolving credit facility due 2016 and a $300 million term loan due 2018.

Moody's also affirmed Town Sports International Holdings, Inc.'s B2 corporate family rating. The probability of default rating was changed to B3 from B2 since the proposed capital structure primarily consists of first-priority senior secured debt.

Moody's assigned an SGL-2 speculative-grade liquidity rating and revised the outlook to positive from stable.

Proceeds from the proposed credit agreement will primarily be used to refinance the 11% senior discount notes due 2014 and existing bank debt.

The outlook revision reflects Moody's expectation that operating performance will recover over the next year and translate into improved credit metrics, the agency said.

The ratings reflect Town Sports' high pro forma financial leverage with a debt-to-EBITDA ratio around 5 times, modest interest coverage, reduced revenue and profitability as a result of soft macro conditions, high geographic concentration and the increasingly competitive dynamics within the fitness industry, the agency said.

The ratings are supported by the company's business position as a large-scale fitness club operator in the Northeast and mid-Atlantic regions, a large and improving membership base, recent improvements in key business indicators and favorable long-term fundamentals for the fitness industry, the agency added.

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