Moody’s cuts Town Sports, loan to Caa2

Moody's Investors Service said it downgraded Town Sports International Holdings, Inc.'s (TSIH) corporate family rating to Caa2 from B3 and probability of default rating to Caa2-PD from B3-PD.

In connection with this action, the agency lowered the ratings on Town Sports International, LLC's (TSI) senior secured bank facility to Caa2 from B3. TSI is a wholly owned subsidiary of TSIH.

In a related action, Moody's affirmed Town Sports' SGL-3 speculative grade liquidity rating.

The outlook is negative.

Moody’s said the downgrade of Town Sports' corporate family rating reflects the company's continued overall and comparable-club revenue declines that have further weakened operating metrics, resulting in sustained negative free cash flow generation and an untenable capital structure. The sharp decline in revenue per member, coupled with increased operating expenses for new and existing clubs produced almost a 650 basis point contraction in EBITA margin to 3.2% in 2015, which followed a reduction in profitability of similar magnitude in 2014.

The agency projects that margins will likely contract further over the next 12 months (all ratios incorporate Moody's standard adjustments).

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