The largest operator of health clubs in the U.S., Bally Total Fitness Corp., will soon place $155 million of floating-rate membership fee receivables-backed notes in the private markets, sources confirmed. Initially placed in its conduit facility, underwriter CIBC World Markets had the transaction rated last week in order for the transaction to be sold to investors.
The offering, named H & T Master Trust Series 2001-1, received a rating of Baa2 by Moody's Investors Service, four notches above the Ba3 corporate unsecured rating of Bally. The $1,000 up-front membership fee and the monthly payments from members make the cash flows closely resemble an installment-sales contract. Contracts typically last three years. The collateral, which averages a 35% default rate, is collateralized to a ratio of twice the expected defaults in the pool.
To protect against the high dropout rate among the less disciplined and motivated members, accounts in the trust are seasoned an average of 12 months. But these receivables are more stable than for most health clubs, due to the suburban location of Bally in 29 states, Asia, Canada and the Caribbean.
Additional protections include a ratings trigger that causes an early payout should Bally's unsecured rating drop below Caa1 or Bally close 25% of its locations. Reserves and subordination totals more than 65% of the total principal balance of the receivables. Also, loss and delinquency triggers are imbedded in the structure.
With four million total members, the Chicago-based firm also operates Pinnacle Fitness, Crunch and Bally Sports Clubs in addition to its Bally flagship brand.