NEW YORK (AP) - Moody's Investors Service said Tuesday it downgraded the
credit ratings of Bally Total Fitness Holding Corp. after the fitness club
operator failed to make an interest payment on $300 million of senior
subordinated notes.
About $535 million of debt securities were affected by the ratings cut.
Moody's downgraded the company's probability of default rating to "D" from
"Caa3" and its corporate family rating to "Ca" from "Caa3". The rating outlook
was changed to "Stable" from "Negative."
The "D" rating means the company is now in default due to Bally's failure to
make the scheduled $15 million interest payment on Monday. The "Ca" rating
reflects the increase in expected losses following the default.
On Thursday, Bally announced it would not make the interest payment and said
the company is in talks regarding waiver and forbearance agreements with its
noteholders. Without such agreements, Moody's said the senior noteholders could
immediately call in their claims and holders of the subordinated debt could
accelerate their claims after a 30-day grace period.
Also Thursday, Bally said it obtained a forbearance agreement from lenders
under its $284 million senior secured credit facility. The lenders agreed not to
call in their claims despite Bally's failure to provide financial reports for
the 2006 fiscal year. The forbearance period expires July 13 but may end earlier
under certain conditions.
In March, Chicago-based Bally said it might file to reorganize its
operations under Chapter 11 bankruptcy protection due to hefty outstanding debt.
Bally shares were flat at 71 cents in afternoon trading on the New York
Stock Exchange.
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