U.S. Markets closed
  • S&P Futures

    4,234.75
    +9.50 (+0.22%)
     
  • Dow Futures

    34,782.00
    +96.00 (+0.28%)
     
  • Nasdaq Futures

    13,741.50
    +31.75 (+0.23%)
     
  • Russell 2000 Futures

    2,274.40
    +6.50 (+0.29%)
     
  • Crude Oil

    65.27
    +0.37 (+0.57%)
     
  • Gold

    1,833.90
    +2.60 (+0.14%)
     
  • Silver

    27.81
    +0.33 (+1.19%)
     
  • EUR/USD

    1.2160
    -0.0009 (-0.0730%)
     
  • 10-Yr Bond

    1.5770
    +0.0160 (+1.02%)
     
  • Vix

    16.69
    -1.70 (-9.24%)
     
  • GBP/USD

    1.4016
    +0.0026 (+0.1864%)
     
  • USD/JPY

    108.8620
    +0.2800 (+0.2579%)
     
  • BTC-USD

    58,945.46
    +297.39 (+0.51%)
     
  • CMC Crypto 200

    1,550.85
    +115.07 (+8.01%)
     
  • FTSE 100

    7,129.71
    +53.54 (+0.76%)
     
  • Nikkei 225

    29,603.69
    +245.87 (+0.84%)
     

Tivity Health, Inc. -- Moody's upgrades Tivity Health, Inc.'s CFR to B2; outlook is Stable

  • Oops!
    Something went wrong.
    Please try again later.
·18 min read
  • Oops!
    Something went wrong.
    Please try again later.

Rating Action: Moody's upgrades Tivity Health, Inc.'s CFR to B2; outlook is Stable

Global Credit Research - 27 Jan 2021

New York, January 27, 2021 -- Moody's Investors Service ("Moody's") today upgraded Tivity Heath, Inc's ("Tivity") Corporate Family Rating ("CFR") to B2 from B3 and its Probability of Default Rating to B2-PD from B3-PD. Concurrently, Moody's upgraded the company's senior secured credit facilities (revolver and term loans) to B2 from B3. Moody's also upgraded Tivity's Speculative Grade Liquidity Rating to SGL-1 from SGL-3. The rating outlook is stable.

The upgrade reflects materially improved credit metrics following the $519 million debt paydown after the close of the sale of its Nutrition business in December 2020. Pro forma for the debt reduction, Moody's adjusted debt-to-EBITDA improved to about 3.2x from 4.3x for the trailing twelve months ended September 30, 2020. Post the divestiture, Tivity will focus on its healthcare business. Lower leverage and a sizable $100 million cash balance provides financial flexibility to manage operating challenges in the SilverSneakers and Prime Fitness businesses due to reduced gym visitation and Moody's expectation that rates from healthcare providers will be pressured along with lower consumer utilization of the company's programs.

The healthcare business has been negatively impacted by the coronavirus pandemic since March 2020 as gym visitation by its members (mostly seniors above age 65) was reduced significantly. However, despite the challenge for its top line, given the nature of a portion of its contracts for the SilverSneakers program (paid as per member per month regardless of number of gym visits) as well as cost management initiatives, the company was able to show significant margin expansion with earnings for the Healthcare business remaining relatively flat in FY2020 vs FY2019 (per company's guidance). For FY2021, Moody's expects continued pressure for topline due to the ongoing coronavirus pandemic from continued depressed gym visitation through at least the first half of 2021. Moody's expects the recovery in visitation will pick up in the later part of 2021 once a higher share of the public has been vaccinated and the coronavirus pandemic subsides. Gym visitation by seniors is nevertheless likely to remain below pre-pandemic levels because of apprehension about being in social settings. Moody's expects the company will focus on expanding its digital offerings to keep its members engaged while at home.

Moody's expects cost management will continue to mitigate some of the negative impact from volume declines in 2021 and expects debt-to-EBITDA leverage will remain in the mid 3.0x for 2021 because of continued debt reduction.

The upgrade of the SGL rating to SGL-1 from SGL-3 reflects Moody's expectation for very good liquidity over the next year. The company has prepaid its mandatory amortization until March 2022 and bolstered the cash balance to approximately $100 million from the proceeds of the Nutrition divestiture, and the reduction in leverage improved cushion within the 5.75x net debt-to-EBITDA leverage covenant. The liquidity rating could decline when term loan amortization rolls into the forward 12-month window and due to step downs in the covenant to 5.25x in December 2020 and 4.75x in December 2021.

Moody's took the following rating actions:

Ratings Upgraded

Issuer: Tivity Health, Inc.

.Corporate Family Rating, upgraded to B2 from B3

.Probability of Default Rating, upgraded to B2-PD from B3-PD

.Gtd. senior secured facility (revolver, term loan A and term loan B), upgraded to B2 (LGD4) from B3 (LGD4)

.Speculative Grade Liquidity Rating, upgraded to SGL-1 from SGL-3

Outlook Actions:

Issuer: Tivity Health, Inc.

.... Outlook, revised to Stable from negative

RATINGS RATIONALE

The B2 CFR reflects Tivity's modest debt-to-EBITDA leverage of about 3.2x pro forma for the divestiture of the nutrition business for the trailing twelve months ended September 30, 2020 and our expectation that leverage will be maintained in the mid 3.0x over the next year. The rating also reflects the company's modest scale, reduced business diversity and concentration in the Healthcare segment following the sale of Nutrisystem and South Beach Diet, as well as revenue concentration that the company's SilverSneaker program has to large health insurance companies which reimburse it for its services. The loss of one or more of these payors or reduction in rates would be a material headwind that would weaken revenue and earnings. New senior management is strategically focused on the healthcare business. Moody's nevertheless believes there is operating uncertainty given the reversal of business focus and the challenges to the SilverSneakers program from reduced utilization of the program and gyms as a result of the pandemic.

However, the rating is supported by Tivity's established market position in fitness and health improvement programs for seniors through its SilverSneakers brand. SilverSneakers is a leading fitness program specifically designed for older adults, offered through Medicare Advantage and Medicare Supplement plans. Hence, for the SilverSneakers program, Tivity is paid by health insurance companies that offer Medicare Advantage programs. Favorable demographic trends in the US reflect an increasing number of seniors turning 65 and signing up and tapping into Medicare Advantage programs. This will expand the company's addressable market as the pool of individuals eligible to participate in the SilverSneakers programs increases.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of Tivity from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Specifically, the weaknesses in Tivity's credit profile, including its exposure to continued social distancing measure in the US have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the ongoing coronavirus pandemic and social distancing measures. Moody's expects the coronavirus concern will start to subside in the second half of 2021 once a growing share of the public has been vaccinated.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable outlook reflects Moody's view that Tivity will be able to maintain its leverage in the mid 3.0x over the next 12 to 18 months despite the ongoing challenge to its operating performance as the result of continued disruptions from the Covid-19 pandemic. The stable outlook also reflects that the company will be able to maintain at least good liquidity.

The company will need to successfully address the operating challenges to be considered for an upgrade including retention of the membership base, restoring utilization levels at or close to pre-pandemic levels, and contract renewals with healthcare providers at rates that do not meaningfully reduce EBITDA. The company will also need to sustain Moody's adjusted debt-to-EBITDA below 3.0x along with very good liquidity including positive free cash flow that comfortably exceeds required term loan amortization to be considered for an upgrade.

The ratings could be downgraded if operating performance weakens from reductions in the membership base, low service utilization, a loss of a large customer, or rate pressure from payers. Debt-to-EBITDA leverage sustained above 4.0x or weakening liquidity could also prompt a downgrade.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Based in Franklin, TN Tivity Health, Inc. is a provider of fitness and health improvement programs for mostly older adults in the US. Key brand is its SilverSneakers brand that provides fitness programs to older adults. Pro forma for the divestiture of its nutrition business in December 2020, we expect the publicly-traded company to generate approximately $430 million of revenue for FY 2020 ending December 31, 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Joanna O'Brien Asst Vice President - Analyst 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 John E. Puchalla, CFA 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

© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.