Fitch rates David Lloyd Leisure B

Fitch Ratings said it assigned Deuce Midco Ltd. (David Lloyd Leisure) a first-time expected B long-term issuer default rating with a stable outlook. The agency also gave the company’s planned £900 million-equivalent of senior secured notes an expected B+ long-term rating with an RR3 recovery rating.

The notes will be issued by Deuce FinCo plc and will rank behind a new £125 million super senior revolver but ahead of the £250 million pay-in-kind instrument raised outside the restricted group, the agency said.

“The B IDR encapsulates DLL's high funds from operations (FFO) adjusted gross leverage under the new capital structure, and low rating headroom. However, we expect leverage to reduce to 7x by 2023, underpinned by good post-pandemic recovery prospects, solid inherent profitability with FFO margin trending towards 14% and enhanced financial flexibility post-transaction,” the agency said in a press release.

The outlook is driven by recovery in memberships following the reopening of sites, and improved attendance as clubs gradually reopen and people gain confidence as more and more people get vaccinated, Fitch said.

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