The Planet Fitness Master Issuer LLC Series is readying a $975 million whole business securitization, and will use some of the proceeds to help support its business, which has expanded significantly since its 2019-1 issuance.
Planet Fitness plans to acquire certain franchise entities, specifically Sunshine Fitness Growth Holdings, which owns 114 franchise locations, according to a company statement in January 11. The cash and stock transaction is valued at $800 million, the company said.
The proceeds will also be used to fully pay down the series 2018-1, class A-1 and class A-2-I notes, fund certain accounts and pay certain transaction expenses.
For the 12-month period ended September 30, 2021, securitized revenue was $358.5 million, and was comprised of securitized franchise revenue, company store royalties, equipment profits and U.S. company store profits, according to Kroll Bond Rating Agency.
The 2022-1 transaction features a couple of other significant changes, said KBRA, which plans to assign ratings of ‘BBB’ to the three classes of notes.
The transaction adjusted securitized net cash flow (SNCF) has increased to $296 million for LTM Q3 2021, compared with $288 million for LTM Q3 2019. In another change, Planet Fitness had 2,193 locations as of September 30, 2021, compared with 1,899 locations as of September 30, 2019.
Guggenheim Securities is the sole structuring advisor and sole bookrunner, according to KBRA.
S&P Global Ratings plans to assign ratings of ‘BBB-’ to the three classes of notes, and highlighted a number of strengths. Planet Fitness is highly franchised, with 90% of stores falling into this category, including the Sunshine Fitness locations. The company is also growing, with membership growing at a rate of 11.4% since 2016.
The transaction structure features two strong forms of credit enhancement sometimes seen on other whole business securitizations, such as a cash-trapping debt-service-coverage ratio (DSCR) threshold and a rapid amortization event. If on any quarterly payment date the DSCR is less than 1.75x, but equal to or greater than 1.50x, then 50% of all excess cash flows will be deposited into the cash trap reserve account, KBRA said. If the DSCR is less than 1.50x, then all of the excess cash flows will be deposited into the cash trap reserve account.
Rapid amortization will be triggered if the DSCR is less than 1.20x. Other conditions could trigger a rapid amortization event, including a manager termination event, or if sales across the Planet Fitness system, as calculated on any quarterly calculation date, fall below $1.25 billion.
The deal is expected to close on February 8.
