EQUNOX TL B 1L USD Corp

Publicly traded companies mentioned herein: N/A

Highlights

The presenter is long the L+300 March 2024 first-lien loans of Equinox, which has a capital structure consisting of this $1.2B first-lien term loan trading at 75, a $76MM fully drawn revolver expiring March 2023, and a $200MM second-lien term loan due September 2024. Equinox is run by its three private equity sponsors (The Related Companies, Leonard Green & Partners, Silver Lake Management), who reportedly invested at anywhere between 12x – 15x EBITDA and contributed another $110MM this year to fund the business’s recovery post-COVID. After Equinox’s understandable struggles during the pandemic, this security fell from par to ~70 and is barely off that trough despite already recovering to 85% occupancy currently vs. 2019. This is partially due to the loan’s Caa2 rating, concentrated ownership, and cash burn. However, management is guiding to a 90% occupancy exit rate by year-end, and the momentum in the presenter’s checks (return to work, subway activity, etc.) seem to corroborate this outlook. Through the first lien, investors can create the business at sub-5x EBITDA and he sees a path to 35% returns including the coupon.