S&P trims Athletico

S&P said it lowered its ratings for Athletico Holdings LLC and its first-lien revolver to B- from B and cut the loan’s recovery rating to 4, which indicates average recovery (30%-50%; rounded estimate: 40%) in a hypothetical default, from 3 (50%-70%; rounded estimate: 50%).

The downgrade reflects a forecast for higher leverage and discretionary cash flow to debt to fall below 3% as visit volume only slowly improves

“In 2023, we expect Athletico will use the proceeds of the recently completed incremental term loan to repay about $63 million ($75 million outstanding on the revolver as of Dec. 31, 2022) for liquidity and to avoid triggering its covenant. The revolver is subject to a springing covenant of first-lien net leverage of 8.25x that triggers when the revolver is 35% or more drawn. In addition, the new term loan at 15% will cause total debt to increase, possibly driving leverage higher depending on how much EBITDA improves,” S&P said in a press release.

The agency said it expects the company to suffer S&P Global Ratings-adjusted leverage of about 10x in 2023, which is 2.1x higher than S&P’s previous expectations, declining to about 8.7x in 2024.

The outlook is negative.

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