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Rating Action:

Moody's changes Planet Fitness' outlook to positive

30 Aug 2017

Approximately $793 Million of Debt Securities Affected.

New York, August 30, 2017 -- Moody's Investors Service ("Moody's") changed the ratings outlook for the debt of Planet Fitness Holdings, LLC to positive from stable. At the same time, Moody's upgraded its Probability of Default Rating (PDR) for the company to B1-PD, from B2-PD, and revised its Speculative Grade Liquidity rating to SGL-1 from SGL-2. In conjunction with this action, Moody's also affirmed the company's B1 Corporate Family Rating (CFR) and the B1 ratings for its Senior Secured Bank Credit Facilities.

The positive outlook reflects strong operating performance and an improving financial profile, which Moody's expects to persist. In particular, Moody's cited its expectation of continued strong growth in EBITDA and cash flow from operations, with related improvement in key credit metrics, including free cash flow-to-debt rising above 8%. The upgrade to SGL-1 acknowledges the strength of Planet Fitness' liquidity profile given its sizable free cash flow forecast for 2017 and 2018. Moody's estimates that Planet Fitness will generate about $85 million in free cash flow for the full year of 2017 which will increase to almost $100 million in 2018. The upgrade of the PDR to B1-PD reflects the associated credit enhancement and perceived reduction in default risk.

"Planet Fitness is poised to experience another year of strong earnings growth as its franchise based business model allows it to have new club openings that outpace the market which we believe will drive further market share gains and strengthen credit metrics and cash flow," stated Maggie Taylor, a Senior Vice President with Moody's.

.

Rating Actions:

Corporate Family Rating, Affirmed at B1

Probability of Default Rating, Upgraded to B1-PD from B2-PD

$75 Million Senior Secured Revolving Credit Facility due 2019, Affirmed at B1 (LGD3)

$718 Million ($713.1 million outstanding at June 30, 2017) Senior Secured Term Loan B due 2021, Affirmed at B1 (LGD3)

Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2

Outlook, Changed to Positive from Stable

RATINGS RATIONALE

Planet Fitness' B1 CFR broadly reflects its national brand and leading market position in terms of number of clubs and membership. The rating is supported by Planet Fitness' strong comparable store sales growth and rapid pace of new club openings that far outpace the industry. The rating benefits from its franchise-based business model which drives EBITA margins of nearly 40% and strong cash flows. The rating also considers Planet Fitness' solid interest coverage, with EBITA-to-interest expense of 4.4 times for the trailing twelve-month period ended June 30, 2017 and further strengthening anticipated. Planet Fitness has very good liquidity, supported by cash balances of $78.5 million as of June 30, 2017, a fully available $75 million revolving credit facility and free cash flow estimate of $85 million for 2017 and just below $100 million in 2018.

However, the rating is constrained by Planet Fitness' financial policy which supports the potential for further debt financed shareholder friendly activities so long as leverage remains within its target range of net funded debt-to-EBITDA of 3-5 times (company-defined levels). For the lagging twelve month period ended June 30, 2017, Moody's lease adjusted debt to EBITDA was 4.2x. It is also constrained by Planet Fitness' comparatively small revenue base, and its concentration in the highly fragmented and competitive fitness club industry, which has low barriers to entry, high attrition rates and exposure to discretionary consumer spending trends.

The ratings could be upgraded if the company achieves significant profitable growth in total revenues and continued strong system-wide and comparable club revenue growth while maintaining a good liquidity profile. In terms of financial metrics, EBITA to interest expense sustained above 4.0x and free cash flow-to-debt above 8% could warrant consideration for a prospective ratings upgrade.

The ratings could be downgraded if debt-to-EBITDA is sustained above 5.0 times, or EBITA-to-interest expense approaches 2.0 times. A material weakening of the company's liquidity profile and/or additional debt-financed shareholder activities that result in significantly higher leverage could lead to negative rating actions.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Hampton, NH, Planet Fitness Holdings, LLC franchises and owns/operates fitness clubs across the US and Canada, as well as in Puerto Rico and the Dominican Republic. As of June 30, 2017, Planet Fitness had about 10.4 million members and 1,403 locations in 48 states and the District of Columbia, Canada, Puerto Rico and the Dominican Republic. More than 95% of its locations are franchises. Trailing twelve-month revenues as of June 30, 2017 were about $402 million.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Margaret Taylor
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Russell Solomon
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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