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Investing.com -- S&P Global Ratings has upgraded fitness company Life Time Inc. to ’BB-’ from ’B+’ with a positive outlook, citing strong performance and reduced financial sponsor ownership.
The upgrade reflects Life Time’s continued strong operating performance and anticipated leverage reduction over the next 12 months. The company outperformed S&P’s expectations in the first quarter of 2025, showing solid growth in center memberships and dues, along with strong member engagement.
Life Time recently lowered its financial policy target to net leverage of 2x or below from the previous 2.25x. The company’s first quarter results showed an 18% expansion in revenue and 31% increase in adjusted EBITDA compared to the prior quarter, prompting management to raise its full-year guidance for 2025.
S&P expects Life Time to increase memberships by mid-single-digit percentages in both 2025 and 2026 as it opens additional locations. The rating agency forecasts 12%-15% growth in total revenue for 2025, with S&P Global Ratings-adjusted EBITDA margin in the mid-30% area.
Financial sponsors Leonard Green Partners (LGP) and TPG Inc. recently reduced their equity stake in Life Time through a secondary offering in June 2025. This reduced the Voting Group’s control to 43.1% from its previous 52.3%. While financial sponsors still control the board, S&P expects the company will establish a majority independent board after a one-year transition to comply with New York Stock Exchange corporate governance requirements.
S&P anticipates Life Time will reduce leverage to the high-3x area in 2025 and potentially to the low-3x area by 2026, depending on management’s capital allocation decisions.
The company plans $650 million-$700 million in annual capital expenditures in 2025 to develop 10-12 new clubs, continuing at this pace as part of its growth strategy. S&P believes Life Time can finance this expansion with internally generated cash flow.
S&P could revise its outlook to stable if it no longer believes Life Time will sustain adjusted leverage below 3.75x. The rating could be lowered if leverage rises above 4.5x. Conversely, an upgrade could occur if Life Time maintains its growth trajectory and achieves leverage comfortably below 3.75x.
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