Research Update: Fitness International LLC Downgraded To 'CCC+' On Pandemic-Related Closures; Outlook Developing

With over 90% of the population under "stay-at-home" guidelines, up from three-fifths in late March, a significant portion of U.S. economic activity has effectively stopped. We now forecast U.S. GDP will contract 5.3% in 2020--substantially worse than our March forecast for a 1.3% decline. We believe the current recession will likely reduce economic activity roughly three times the decline seen during the Great Recession in one-third of the time. As a result of the pandemic, Fitness International LLC (LA Fitness) has closed all its fitness clubs in the U.S. and frozen all its club memberships. While memberships are frozen, LA Fitness will face a temporary zero- or low-revenue scenario. Despite entering the pandemic with S&P Global Ratings' lease adjusted leverage

...- With over 90% of the population under "stay-at-home" guidelines, up from three-fifths in late March, a significant portion of U.S. economic activity has effectively stopped. We now forecast U.S. GDP will contract 5.3% in 2020--substantially worse than our March forecast for a 1.3% decline. We believe the current recession will likely reduce economic activity roughly three times the decline seen during the Great Recession in one-third of the time. - As a result of the pandemic, Fitness International LLC (LA Fitness) has closed all its fitness clubs in the U.S. and frozen all its club memberships. While memberships are frozen, LA Fitness will face a temporary zero- or low-revenue scenario. - Despite entering the pandemic with S&P Global Ratings' lease adjusted leverage around 4.5x in 2019, which compared favorably to its rated fitness peers, we have assumed that LA Fitness will experience a significant spike in leverage and material cash burn while its gyms are closed and may use a substantial...

Research Update