Moody's upgrades Equinox

Moody’s Investors Service said it upgraded Equinox Holdings, Inc.’s corporate family rating to B2 from B3, probability of default rating to B2-PD from B3-PD, $100 million first-lien senior secured revolving credit facility due 2018 to Ba3 (LGD3, 32%) from B1 (LGD 3, 31%), $595 million (including proposed $100 million add-on) first-lien senior secured term loan due 2020 to Ba3 (LGD3, 32%) from B1 (LGD 3, 31%) and $200 million second-lien senior secured term loan due 2020 to Caa1 (LGD5, 81%) from Caa2 (LGD5, 82%). The outlook is stable.

Proceeds from the proposed $100 million add-on will be used to pre-fund future investments including capex for new facilities.

The upgrade reflects Moody's expectation that growth in Equinox's revenue and earnings will continue over the next two to three years due to strong same-store sales at its existing club locations, growth in new stores across all three brands and increased membership count.

The B2 corporate family rating reflects Equinox's strong market position in upscale fitness clubs, good operating trends relative to its peers, upside from the membership ramp-up at recently opened clubs and the fitness industry's favorable long-term growth fundamentals, the agency said.

Moody’s said the rating also considers Equinox's high leverage and modest interest coverage. The agency expects the company’s ratio of debt to EBITDA and its ratio of EBITDA less maintenance capex to interest to be around 7.0 times and 1.5 times, respectively, at the end of 2015.

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