Bloomberg | January 14, 2021 | By: Katherine Doherty
Life Time Inc. has distinguished itself from failing fitness peers in three ways: It’s not just a gym, its facilities are huge, and it hasn’t gone bankrupt.
Part-wellness refuge and part-entertainment center, Life Time’s chain “never considered filing” Chapter 11, Chief Executive Officer Bahram Akradi said in an interview. Instead of shutting locations, it’s opening a 1.2 million-square-foot Life Time Village in Coral Gables, Florida this year, complete with an athletic club, co-working space and luxury apartment complex.
Other plans call for wellness centers in Chicago, New York, Dallas and Houston. “Fitness alone is not a business. It’s too fickle. It’s too fatty. It comes and goes,” Akradi said. “We’ve created our own category” focused on experiences, he said.
Life Time attracts clients with high-end offerings like pools, spas, cafes and tennis courts. Half of its members join with fitness as a secondary priority, Akradi said.
Investors apparently agree that Life Time is different and cut the company some slack on its new debt. The $850 million loan priced at 99 cents on the dollar with the interest set at Libor+475, Bloomberg reported on Jan. 19. This amends and extends Life Time’s loan maturity by two years to 2024, alongside $925 million of new senior secured notes, which were upsized by $100 million and priced at par.
The money is flowing in after chains including 24 Hour Fitness Worldwide Inc., Gold’s Gym International Inc. and the owner of New York Sports Clubs filed for bankruptcy in 2020 as customers fled the pandemic.
The fitness industry is “undergoing a massive shift, causing companies to re-think their business model,” Larry Perkins of advisory firm SierraConstellation Partners said. “A lot more people have shifted their behavior and are going outside for runs and using home equipment,” cutting deep into a gym’s revenue while adding higher costs to keep locations clean and running, he said.
Akradi’s company wasn’t immune to the Covid-19 outbreak, which forced Life Time to impose furloughs on 38,000 employees and pay cuts on senior management, he said.
So far, about 24,000 of the staff are back at work. Cost-cutting helped Life Time maintain around $250 million of liquidity throughout the pandemic, and that increased to more than $400 million after the debt refinancing.
While Akradi is “anti-debt” in normal times, “we had to play defense, make sure we would survive,” he said. “We will be the last ship sailing.”