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Pandemic hot spots remain potential trouble for Planet Fitness

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Planet Fitness on Wednesday avoided a whole-business securitization downgrade from Kroll Bond Rating Agency.

But the fitness center chain is not out of the woods yet, due to the unrelenting spread of COVID-19 in some of its top markets.

Kroll affirmed the original BBB ratings on Planet Fitness’ 2018 and 2019 series notes – totaling about $1.8 billion – after assessing the franchisor had adequate debt service coverage and liquidity to support those outstanding obligations from its franchise-fee securitization shelf.

But those master-trust notes issued from the Hampton, N.H., company’s master trust still remain under review for downgrade, with ratings analysts concerned that key markets in Planet Fitness’ franchise footprint are experiencing sharp rises in reported coronavirus cases this summer.

“[S]everal of the system’s top states by gross sales include California, Texas, and Florida where COVID-19 transmission rates are hitting new highs and the reopening of businesses are being re-evaluated,” according to a Kroll press release.

The initial downgrade review by Kroll was launched April 6, after the U.S. coronavirus outbreak had forced Planet Fitness to close more than 2,000 locations nationwide (while also suspending membership dues). Planet Fitness has since reopened more than 75% of its locations as state and local jurisdictions eased restrictions on gyms and other public gathering spots. Planet Fitness experienced very few membership cancellations and renewed regular customer billing at those newly reopened centers, according to Kroll.

Kroll’s report noted Planet Fitness is in a sound financial position in the near term to maintain payments on the notes, which are funded by revenues collected from individual franchise operators (including membership fees and proprietary equipment-purchase costs). The company keeps a debt-service coverage ratio of about 3.9x on the outstanding whole-biz notes, and has drawn from variable funding notes to shore up its cash position and prefund scheduled principle and interest payments for its next two quarters.

However, the pandemic "remains an evolving situation across the U.S. as infection rates and economic uncertainties persist.”

A Planet Fitness location in West Virginia drew attention from health officials there in late June after a gym client tested positive for COVID-19, potentially exposing more than 200 other patrons.

Planet Fitness also remains on a downgrade watch with S&P Global Ratings, which renewed its original March 25 negative credit watch for another 90 days on June 22.

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Whole business securitization Downgrades