Gym chain operator Planet Fitness is preparing a US$975m securitization to refinance some older debt and to fund its purchase of a large franchisee.
Planet Fitness Master LLC 2022-1 contains two fixed-rate notes which are expected to be rated BBB- by S&P and BBB by Kroll and each will have a minimum size of US$250m. The A-2-I note has a weighted-average life 4.7 years and the A-2-II has a 9.4-year WAL. There is a US$75m variable funding note that is not offered. Guggenheim is the sole structurer and book manager.
The deal is expected to close on February 8, S&P said.
On January 11, the Hampton, New Hampshire company said it inked an agreement to acquire Sunshine Fitness Growth Holdings which owns and operates over 100 Planet Fitness facilities in the Southeast United States in a cash and stock transaction valued at US$800m. The franchisor said it planned to finance the cash portion of the deal by issuing securitized debt.
As a part of the latest securitization, it will refinance a Class A-2-1 note issued in 2018, which had a principal balance of US$558m at the end of September 30, 2021. The note’s original balance was US$625m and carried a 4.666% coupon.
While a majority of Planet Fitness gyms are operated by franchisees, the acquisition of Sunshine Fitness will increase the corporate-owned facilities to 216, which is up from 82 back in 2019. There are currently 2,254 Planet Fitness gyms around the world, according to Kroll.
"Owning corporate stores is an important part of our strategy, as it gives us both relevancy and credibility when making decisions that impact the entire system,” Planet Fitness Chief Executive Officer Chris Rondeau said in a statement about the Sunshine acquisition.
The new ABS will increase the total debt to Planet Fitness securitization trust to US$2.1bn versus US$1.8bn in 2019, but the trust’s leverage will fall to 7.7x from 8.4x on a total debt to adjusted Ebitda basis due to the expected increase in cashflows to service the debt from the Sunshine deal, S&P said in a pre-sale report.
“Although we view Planet Fitness' leverage as high relative to its corporate securitization peers, the company's performance has been improving from Covid-related stress, and the results of strong membership and systemwide sales indicate that the business may return to 2019 levels, which could cause leverage to fall below 7.0x,” S&P analysts wrote.