Fitness club operator offers a healthy rate

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Health and fitness club operator Next Generation Clubs Australia launched its inaugural corporate bond issue last week, offering investors 7.9 per cent a year over a five-year term.

The offer of senior secured notes, which was arranged by specialist fixed income broker FIIG Securities, is for up to $60 million of funding. Next Gen does not have a credit rating.

The offer opened and closed last week but investors can buy on the secondary market through FIIG and other fixed income specialists.

Next Gen is majority owned by a UK private equity investor Kings Park Capital. It has clubs in Sydney, Adelaide, Perth (two), Canberra and Auckland, offering tennis and squash facilities, gyms and pools, spas and saunas, and sports clinics. The clubs also have member lounges, cafes, bars and creches.

It markets its facilities as “family-oriented, premium multi-service” offerings in what it acknowledges is a highly competitive industry.

The company’s business model is to lease sites that are owned by local councils or other governments, or not-for-profit sporting associations. It negotiates low rents in returns for commitments to develop the facilities.

It services a total of 28,000 members and has been in operation for 18 years.

The company has reported revenue of between $41 million and $42 million over the past two years. It is forecasting revenue of $43.7 million in 2017/18 and $45.3 million in 2018/19.

It is forecasting EBITDA of 12.1 million this financial year and $13.1 million next. On its current net debt of around $43 million, the multiple of EBITDA to interest is a prospective 3.9 times 2017/18 EBITDA.

The company had free cash flow (operating cash flow less capex) of $4.6 million in 2016/17 but is forecasting negative free cash flow of $600,000 this financial year and negative $6.3 million next.

$45 million of the bond issue will be used to refinance existing debt. One of the advantages of issuing bonds is that the company is able to put a longer-dated debt facility in place, which gives it greater funding certainty.

The other $15 million is earmarked for a new club in Doncaster, Melbourne, which is awaiting development approval.

The notes will be amortised by 33 per cent of face value over the last three years of the term.

The notes will be secured by first ranking charges over the entire Next Gen Australia and New Zealand group, including first ranking mortgages over each leasehold and freehold property.

Next Gen’s managing director is Brett Leahy, who was previously national general manager of Belgravia Health and Leisure Group. He has been at Next Gen since 2012.

The chair is Greg Sedgwick, a former chief executive of ASX-listed building and industrial products maker Crane Group.

 

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