Moody's cuts Sports Club notes to Caa2

Moody's Investors Service said it has downgraded Sports Club Co. Inc.'s senior implied rating to Caa2 from B3 and all other ratings similarly by one notch, including the company's $100 million 11.375% senior secured notes due March 15, 2006 to Caa2 from B3.

The outlook is negative.

Moody's said the change in ratings is due to liquidity concerns that are compounded by a $5.7 million interest payment due in March 2004. The ratings incorporate the company's tight liquidity, weak balance sheet and the slower-than-expected profitability at the company's newly developed clubs.

The company has publicly stated that it is considering various capital raising options including selling additional equity.

Moody's noted the ratings also consider the company's ability to differentiate its product offering by gearing its sports clubs toward the more mature (over 35 year old) segment of the population that enjoys higher levels of disposable income. This segment of the population is also the fastest growing.

The company has stated that two key shareholders have committed to provide sufficient financial support through March of 2004. These are the same two shareholders that guarantee a $20 million mortgage loan.

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