Moody's affirms Bally TotaL Fitness Holdings Corp
(Press release provided by Moody's Investors Service)
NEW YORK, Dec 9 - Moody's Investors Service confirmed Bally Total Fitness Holding Corporation's (Bally) B3 senior subordinated note rating and assigned a B3 to the proposed additional $75 million of notes.
In addition, Moody's assigned a B1 to its $90 million bank credit facility.
Bally's (NYSE:BFT - news) senior implied is B1.
The rating outlook is stable.
The additional $75 million of subordinated notes and increased bank facility are intended to be used for acquisitions of certain facilities that are currently leased, hastened development of fitness centers and selected acquisitions.
The ratings and outlook reflect Bally's high leverage, thin interest coverage, substantial capital expenditure plans, history of operating losses (prior to the most recent fiscal year), share repurchase program and potential integration issues as the company accelerates its growth strategy.
In addition, the company continues to report modest operating margins and is in the process of rationalizing certain facilities and acquiring new ones which may improve results over the long term but is likely to be disruptive to current operations.
However, the ratings also consider the company's transition to a more profitable payment structure, good growth opportunities for the health club industry as well as its improved equity base following its May 1998 $83 million public equity offering.
The B1 rating on the $90 million of secured bank facilities reflects the benefits and limitations of the collateral package.
Obligations under the facility are secured by collateral which consists principally of the fixed assets of the company and excludes the installment contracts receivables which are used to secure the company's asset-backed securities private placement.
The B3 rating on the senior subordinated notes reflects their contractual and structural subordination to Bally's bank debt. Pro forma for the transaction and as of September 30, 1998, Bally's debt will be substantial at approximately $462 million.
Total shareholders' equity is $158 million on assets of $1.1 billion but tangible equity is approximately $58 million. Leverage is high with debt-to-EBITDA of 4.8 times and debt-to book capitalization of 75%.
Cash flow is constrained by capital expenditures with EBITDA less capital expenditures inadequate to cover interest expense and EBIT-to-interest expense coverage at a moderate at 1.1 times.
Bally Total Fitness Holding Corporation, headquartered in Chicago, Il., is the largest commercial operator of fitness centers in the US with approximately 325 centers.
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