Cascade Fitness (CSFT) — Senior Notes 9.00%
Executive Summary
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%. Recommendation: HOLD. Credit score 47/100 (Elevated risk). Base-case IRR 7.3%, downside 2.7%, severe -66.0%; probability-weighted IRR 1.0% vs a 12% hurdle; weighted P(default) 45%; severe-case valuation recovery 0%. 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%).
Investment 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.
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?
Company Overview
Membership-based boutique fitness operator with high lease obligations and growth-by-leverage strategy. HQ Portland, OR; Consumer / Boutique Fitness Clubs. FY2025A revenue $900M, EBITDA $198M (22.0% margin); total debt $1.1B, cash $90M. DEMO DATA
Industry / Market
Discretionary fitness memberships are among the first things consumers cut; unit economics are sound only at high utilization.
Historical Financial Performance
| $M | FY2022A | FY2023A | FY2024A | FY2025A |
|---|---|---|---|---|
| Revenue | $720.0M | $810.0M | $860.0M | $900.0M |
| % growth | 12.5% | 6.2% | 4.7% | |
| Direct costs / COGS | $331.2M | $368.5M | $387.0M | $405.0M |
| Gross profit (NOI for real estate) | $388.8M | $441.5M | $473.0M | $495.0M |
| % margin | 54.0% | 54.5% | 55.0% | 55.0% |
| Operating expenses (cash, adjusted) | $237.6M | $267.3M | $283.8M | $297.0M |
| EBITDA (company-adjusted basis) | $151.2M | $174.2M | $189.2M | $198.0M |
| % margin | 21.0% | 21.5% | 22.0% | 22.0% |
| D&A | $50.4M | $56.7M | $60.2M | $63.0M |
| Share-based compensation | $0.0M | $0.0M | $0.0M | $0.0M |
| EBIT | $100.8M | $117.5M | $129.0M | $135.0M |
| Interest expense | $83.8M | $88.7M | $93.7M | $98.6M |
| EBT | $17.0M | $28.7M | $35.3M | $36.4M |
| Taxes | $4.2M | $7.2M | $8.8M | $9.1M |
| Net income (model basis) | $12.7M | $21.5M | $26.5M | $27.3M |
| Capex | $43.2M | $48.6M | $51.6M | $54.0M |
| Working capital & other cash items | $0.8M | $1.8M | $1.0M | $0.8M |
| Free cash flow | $19.1M | $27.8M | $34.1M | $35.5M |
Capital Structure
| Tranche | Rank | Secured | Face value | Rate | Maturity | Mark / price |
|---|---|---|---|---|---|---|
| First-Lien Term Loan | 1 | Yes | $700.0M | S+405bp | 2030-06-30 | 101.0 |
| Senior Notes 9.00% | 3 | No | $450.0M | 9.00% | 2031-02-15 | 104.0 |
Total debt $1.1B (5.8x EBITDA); net debt $1.1B; liquidity $90M; loan-to-value through the target tranche 106%.
Credit Analysis
Net leverage 5.4x, EBITDA / interest 2.01x, FCF / debt 3.1%, DSCR 1.3x, liquidity ratio 0.9x. Score components: Leverage 5/15, Coverage 4/15, Liquidity 2/10, Free cash flow 4/10, Maturity risk 10/10, Margin stability 10/10, Revenue stability 8/8, Asset coverage 0/12, Industry risk 5/10. Score change vs FY2024A (same capital structure): 46 → 47 (Net leverage fell from 5.6x to 5.4x (+0.7 pts, positive); Liquidity ratio fell from 0.9x to 0.9x (-0.3 pts, negative)).
Debt Maturity Profile
| Period | Debt due | % of debt | Projected liquidity (Base) | Refinancing requirement |
|---|---|---|---|---|
| FY2030E | $700M | 61% | $375M | $325M |
| 2031 (beyond horizon) | $450M | 39% | $0M | $450M |
Risk flag: $700M maturity in FY2030E; only $375M projected liquidity; $325M refinancing requirement.
| Tranche | Matures | Balance at maturity | Cash on hand | Net lev. (test ≤) | Pro-forma coverage (test ≥) | Refi rate | Interest burden after | Result | Resolution |
|---|---|---|---|---|---|---|---|---|---|
| First-Lien Term Loan | FY2030E | $665.0M | $292M | 3.0x (8.5x) | 2.63x (1.20x) | 9.5% | $28.2M | REFINANCING PASS | Partly repaid from cash; remainder refinanced |
Base Case
Revenue CAGR 6.0%; FY2030E EBITDA $275M (22.8% margin); trough EBITDA $210M; peak net leverage 4.9x; minimum EBITDA / interest 2.13x; cumulative FCF $313M. No payment default modelled. IRR 7.3%, MOIC 1.22x.
Downside Case
Revenue CAGR -0.7%; FY2030E EBITDA $174M (20.0% margin); trough EBITDA $150M; peak net leverage 7.0x; minimum EBITDA / interest 1.41x; cumulative FCF $36M. Payment default modelled in FY2030E; target-tranche recovery 72%. IRR 2.7%, MOIC 1.14x.
Severe Downside
Revenue CAGR -6.4%; FY2030E EBITDA $110M (17.0% margin); trough EBITDA $90M; peak net leverage 12.9x; minimum EBITDA / interest 0.77x; cumulative FCF ($239M). Payment default modelled in FY2027E; target-tranche recovery 0%. IRR -66.0%, MOIC 0.17x.
Covenant Analysis
| FY2026E | FY2027E | FY2028E | FY2029E | FY2030E | |
|---|---|---|---|---|---|
| Current metric | 4.85x | 4.30x | 3.76x | 3.23x | 2.72x |
| Covenant | ≤ 6.50x | ≤ 6.50x | ≤ 6.50x | ≤ 6.50x | ≤ 6.50x |
| Headroom | 1.65x (25%) | 2.20x (34%) | 2.74x (42%) | 3.27x (50%) | 3.78x (58%) |
| Status | PASS | PASS | PASS | PASS | PASS |
| FY2026E | FY2027E | FY2028E | FY2029E | FY2030E | |
|---|---|---|---|---|---|
| Current metric | 6.43x | 7.03x | 6.62x | 6.25x | 5.88x |
| Covenant | ≤ 6.50x | ≤ 6.50x | ≤ 6.50x | ≤ 6.50x | ≤ 6.50x |
| Headroom | 0.07x (1%) | −0.53x (-8%) | −0.12x (-2%) | 0.25x (4%) | 0.62x (10%) |
| Status | PASS | BREACH | BREACH | PASS | PASS |
Recovery Analysis
If the company defaults, recovery value is $495M (going concern) in the severe case → 0% recovery (100% LGD) on the target tranche; downside 72%. Recovery value = MAX(going concern $495M, liquidation $78M) + cash, less administrative costs; severe case struck at FY2027E.
| Claim (by seniority) | Rank | Claim | Recovery | Recovery % | Loss | Loss % |
|---|---|---|---|---|---|---|
| Recovery value | $494.6M | |||||
| Less: administrative / DIP costs | ($19.8M) | |||||
| First-Lien Term Loan | 1 | $705.0M | $474.9M | 67.4% | $230.1M | 32.6% |
| Senior Notes 9.00% | 3 | $460.1M | $0.0M | 0.0% | $460.1M | 100.0% |
| Total claims | $1.2B | $474.9M | $690.2M | |||
| Equity (residual) | $0.0M | Wiped out | ||||
Investment Returns
| Base Case | Downside | Severe Downside | |
|---|---|---|---|
| Face value / purchase price / cash investment | $100M / 104.0 / $104.5M UNDERWRITING ASSUMPTION | ||
| Cash interest + exit/recovery proceeds | $27.0M + $100.0M | $45.0M + $73.9M | $18.0M + $0.0M |
| Capital gain / (loss) vs purchase price | ($4.0M) | ($30.1M) | ($104.0M) |
| MOIC | 1.22x | 1.14x | 0.17x |
| IRR (hurdle 12%) | 7.3% | 2.7% | -66.0% |
Key Risks
- 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.
- Unsecured, rank 3: $700M of debt ranks ahead.
Key Protections
- 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
Catalysts
- Call date on notes
- Same-store membership trends
Due Diligence Items
| Item | Status | Priority | Open question |
|---|---|---|---|
| Historical financials tied to filings | In Progress | High | Do model inputs reconcile to audited statements? |
| Quality of earnings / EBITDA add-backs | In Progress | High | How much of adjusted EBITDA is add-backs? |
| Free cash flow conversion | In Progress | High | What is cash conversion after capex and working capital? |
| Competitive position and management | Issue Identified | Medium | Share trend and management track record? |
| Debt documentation review | Not Started | High | Priming / drop-down protections and baskets? |
| Covenant package and definitions | Not Started | High | Covenant EBITDA definition and headroom? |
| Maturity profile and refinancing plan | Not Started | High | Is the refinancing plan credible at current leverage? |
| Industry conditions and pricing | Issue Identified | Medium | Where are we in the industry cycle? |
| Macro and rate sensitivity | Not Started | Low | How does the credit behave at +300 bps? |
Recommendation
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%).
| Test | Actual | Required | Weight | |
|---|---|---|---|---|
| ✗ | Base-case IRR clears hurdle | 7.3% | ≥ 12.0% | core |
| ✗ | Expected-cash-flow IRR (probability-weighted) clears hurdle | 1.0% | ≥ 12.0% | core |
| ✓ | Downside IRR stays above floor | 2.7% | ≥ 0.0% | core |
| ✓ | Downside recovery meets minimum (valuation waterfall) | 72.2% | ≥ 60.0% | core |
| ✓ | Base-case refinancing succeeds | PASS | PASS | core |
| ✗ | Entry yield meets minimum | 8.0% | ≥ 9.0% | secondary |
| ✓ | Net leverage within maximum | 5.4x | ≤ 6.0x | secondary |
| ✓ | Covenant headroom (base case, minimum) | 25.4% | ≥ 15.0% | secondary |
| ✗ | Principal protected in severe case (recovery ≥ price) | 0 vs 104.0 | recovery ≥ price | secondary |
| ✗ | No unresolved high-priority diligence | 6 open | 0 open | secondary |
What would change my mind?
- EBITDA declines more than 50% from FY2025A (coverage < 1.0x) — or more than 18% (first covenant breaks).
- The entry price is above 92.3: the base case no longer earns the 12% hurdle (assumed price 104.0).
- Collateral / enterprise value falls more than 0% from the base-case valuation: the tranche starts to take losses.
- Market access weakens: base-case pro-forma coverage at refinancing is 2.63x vs the 1.20x test, at an assumed 9.5% refinancing rate — a higher spread or lower EBITDA flips the test.
Sources (3)
| Source | Document | Data type | Period | Accession | Doc date | Retrieved | Class |
|---|---|---|---|---|---|---|---|
| CreditIQ demo dataset | Cascade Fitness — illustrative financial statements FY2022–FY2025 | Income statement / cash flow | FY2022–FY2025 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Cascade Fitness — illustrative capital structure & covenants | Debt schedule | As of 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Illustrative indicative bid marks (% of par) | Market price | 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
Generated entirely from the structured model (inputs → analysis → memo): every figure reconciles to the Excel workbook (see Settings → Reconciliation). Hypothetical terms are underwriting assumptions. Not investment advice.