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Beleaguered Gym Equinox Struggles To Deal With Its Debt Load

Equinox Holdings Inc., a luxury gym chain backed by Related Cos. with about 100 locations, has tasked the law firm of Kirkland & Ellis, as well as investment bankers at Centerview Partners, to help it navigate its way through its sizable debt obligations, Bloomberg reports, citing sources familiar with the situation.

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A D.C. Equinox Sports Club in the same building as The Ritz-Carlton at 1170 22nd St. NW.

Equinox has until February to repurchase debt tied to its SoulCycle spin studio chain, a reprieve from an original May 2020 deadline. Equinox is obliged to buy at least $72.8M of SoulCycle debt, SGB Media reports.

"Depending on the company’s liquidity position at that time, we would view any further deferrals beyond Feb. 15, 2021, as tantamount to a default,” S&P Global Ratings said about the upcoming deadline, as reported by SGB.

The chain is carrying a total of more than $1.1B in debt altogether, according to The Wall Street Journal, which adds that the company's debt restructuring talks could mean a bankruptcy filing, though that isn't certain.

"Equinox's Caa2 [corporate family rating] reflects its weak liquidity and very high leverage," Moody's Investor Service reported in June, not long after downgrading Equinox to that rating. "The rating is also constrained by the high business risk of the fitness industry as well as the company's geographic concentration in New York City and coastal California."

In Moody's rating system, Caa2 is a speculative grade for long-term corporate debt. Obligations rated Caa2 are considered to be of poor standing, and subject to very high credit risk.

On the other hand, Moody's said, Equinox has well-recognized brand names and a good market position among upscale fitness clubs. Also working in its long-term favor — presumably after the pandemic is over —  is under-penetration by fitness clubs and consumers' increased awareness of the importance of fitness.

Equinox has other debts as well. One of its landlords, an entity associated with Orb Management, said the gym is behind by about $1.3M in rent on its West Village location in Manhattan, having only paid about $135K since March, Crain's New York Business reports.

The fitness company has already laid off about 300 employees at 16 locations in New York City and one on Long Island, citing "unforeseeable business circumstances prompted by COVID-19" in its statement to the state of New York. Another nearly 1,200 workers have been furloughed or had their hours reduced.

The coronavirus pandemic has put enormous stress on the fitness industry, whose locations previously weren't arranged to accommodate social distancing measures. Equinox has been able to reopen about 75 of its locations in recent months, though with limitations on how many people can be in each facility at any given time.

Foot traffic for the industry is drastically off compared with a year ago. Placer.ai reports, for example, that LA Fitness' traffic was down 56.8% year-over-year in September, and Orangetheory Fitness and Gold's Gym were off 43.8% and 41.9%, respectively, though those figures represent a marked improvement compared with the first months of the pandemic.

A number of fitness club chains have also filed for bankruptcy this year, including Gold's Gym, 24 Hour Fitness, Yoga Works and Cyc Fitness.