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Cascade Fitness · CSFT

DEMO DATAUNDERWRITING ASSUMPTIONHOLD
Five-minute case summary

Cascade Fitness

DEMO DATAUNDERWRITING ASSUMPTION
HOLD
1
The opportunity
Demo purchase of $100M face of Senior Notes 9.00% at 104.0 (cash investment $104.5M): current yield 8.7%, yield to maturity 8.0%.
2
The question
Does a 8.0% yield on a rank-3 unsecured claim compensate for 45% probability-weighted default risk and 100% severe-case loss?
3
The thesis
Priced above par with ~5.4x net leverage, thin asset coverage (0.5x) and discretionary consumer exposure. Downside recovery on the notes is poor and call protection caps the upside. Avoid at current levels.
4
The risk (what causes loss)
  • Severe-case valuation recovery of 0% is below the 104.0 purchase price: a 100% loss given default.
  • Refinancing: $700M maturity in FY2030E; only $375M projected liquidity; $325M refinancing requirement.
  • Downside-case recovery of 72% falls short of the purchase price.
  • Severe case produces a payment default in FY2027E.
5
The protection
  • Coverage of 2.01x EBITDA / interest; EBITDA can fall 50% before coverage reaches 1.0x.
  • Base-case refinancing tests pass for all 1 maturing tranche(s); 0 are repaid from cash.
  • Membership revenue visibility
  • Unit growth
6
The base case
Base case (55%): revenue 6.0% in FY2026E, EBITDA margin 22.0%; no default; IRR 7.3%, MOIC 1.22x vs 12% hurdle.
7
The downside
Downside (30%): EBITDA $150M at the trough, peak net leverage 7.0x, covenants breach in FY2027E; default in FY2030E; IRR 2.7%. Severe (15%): default in FY2027E, IRR -66.0%.
8
The recovery
If the company defaults, recovery value is $495M (going concern) in the severe case → 0% recovery (100% LGD) on the target tranche; downside 72%.
9
The decision
HOLD. HOLD (do not size yet): Base-case IRR clears hurdle (7.3% vs ≥ 12.0%); Expected-cash-flow IRR (probability-weighted) clears hurdle (1.0% vs ≥ 12.0%); Entry yield meets minimum (8.0% vs ≥ 9.0%).

Generated from the structured model (no free-text generation beyond the analyst’s thesis and risk lists). Hypothetical terms are underwriting assumptions; nothing here is a real transaction.