24 Hour Fitness Worldwide: Draws Down Revolver

The Wall Street Journal reported on March 24, 2020 that 24 Hour Fitness Worldwide closed all its locations due to Covid-19; drew down its Revolver for liquidity; withdrew earnings guidance and saw its 2022 bonds trade at 32 cents on the dollar.

All that’s bad news for the only BDC lender to the fitness chain: Barings BDC (BBDC). The BDC is a senior secured lender in a 2025 Term loan that was discounted (25%) at year-end 2019. At that point, the BDC Credit Reporter downgraded the company from performing (CCR 2) to Worry List (CCR 4). The latest news confirms our concerns that recovery of capital in full looks unlikely. That’s especially the case as 24 Hour Fitness was lagging even before the most recent crisis, and the 2025 Term loan is valued at only 33 cents on the dollar.

The saving grace for BBDC – in what was supposed to be a very safe loan (priced at LIBOR + 350 bps) – is its decision to lighten its exposure recently to just $4.7mn at cost from more than twice as much as of IIIQ 2019. If this loan defaults – and we expect that to happen – the income involved is only $0.200mn a year and the likely realized loss at 50% is ($2.4mn).