Moody's downgrades 24 Hour Fitness

Moody's Investors Service said it downgraded All Day AcquisitionCo, LLC's (24 Hour Fitness) corporate family rating to Caa3 from Caa1 and probability of default rating to Caa3-PD from Caa1-PD. Concurrently, the agency slashed the rating on the company's senior secured term loan due 2025 and senior secured delayed draw term loan due 2026 to Caa3 from B3.

“The downgrade reflects worse than expected performance since the company re-emerged from the Chapter 11 bankruptcy on Dec. 31, 2020. The company's recent effort to meaningfully reduce membership pricing to attract new members and retain existing members reflects the challenges it faces as it recovers from the pandemic. 24 Hour fitness operates in the mid-tier price point segment that has been experiencing intense competition from the high-value low-price players such as Planet Fitness and smaller local clubs in recent years,” Moody’s said in a press release.

“The downgrade of the term loan and DDTL additionally reflects a one notch downward override to the Caa2 loss given default model derived outcome. The override reflects Moody's view that the sizable lease obligations would not provide meaningful loss absorption for the term loans in the event of a default since Moody's believes the company intends to maintain the current club base,” the agency explained.

The outlook remains negative.

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