24 Hour Fitness downgraded by Moody's to Caa3 on weak operating performance

All Day AcquisitionCo LLC, doing business as 24 Hour Fitness, was downgraded two notches Feb. 8 by Moody's to Caa3 from Caa1, retaining its negative outlook, with the agency citing operating performance since the company's emergence from bankruptcy that was worse than projected. 24 Hour's senior secured term loan due 2025 and its senior secured delayed-draw term loan due 2026 were also downgraded to Caa3 from B3.

The company has recently cut prices to retain members and attract new ones, as it encounters "intense competition from the high value low price players," such as Planet Fitness and local clubs, as well as competition from "technology-based fitness services that are not tied to a facility," according to Moody's. The agency projects that the company will burn "significant cash" in 2022, leading to the need for additional debt funding.

Moody's believes that 24 Hour has a "high risk of a distressed event" in the next 12 months, noting the negative cash flow, along with the upcoming maturity of a $60 million super-priority delayed-draw term loan in August 2022. The rating agency said leverage was "unsustainable" at around 12x for the 12-month period ended Sept. 30, 2021.

In November 2021, 24 Hour's debt was downgraded to CCC- from CCC by S&P Global Ratings, while its issuer rating was affirmed at CCC- and a negative outlook, with Ratings citing concern over potentially significant liquidity shortfalls over the next year.

California-based 24 Hour Fitness operates fitness clubs and health centers. It emerged from bankruptcy Dec. 31, 2020.