Pure Gym’s holding company, Pinnacle Bidco plc, has set out to raise £805m through issuing loan notes. The money will be used to refinance existing loan notes which mature in February 2025.

The timing is thought to relate to the company’s strong trading position through the first half of 2023 as it powers back from its pandemic low.

Talking to HCM, CEO Humphrey Cobbold said: “As we set out at our recent Q2 results, we indicated we’d been preparing to refinance our bonds, which mature in 2025.

“This refinancing process will see us speaking to a range of financial institutions to tell them about our strategy and the exciting opportunities we see ahead.

“We have an outstanding track record as a borrower, a highly experienced management team, strong business performance with great momentum and a clear strategy giving us a great platform from which to launch this process,” said Cobbold. “We’re confident we’ll secure the refinancing and that this will be a testament both to our business and to the very best of our industry.”

The raise has been split into Euro and Sterling tranches of five years, but although the company launched in the US last year the raise is not targeted at US investors, indicating that financing the growth of the US business is likely to be done by other means.

The company is looking to place minimum tranches of 300 million in each currency.

Moody's has assigned a B3 rating, saying the outlook for the company is ‘stable’.

Pure Gym’s existing bonds date from a £360 million offering which was put in place in July 2018 and €445 million from November 2020. Both tranches have since been increased via add-ons.

Interest rates on the new notes will be higher than the existing, increasing Pure Gym’s interest payments from the current level of £51m a year to around £80m a year.

Moody’s says these higher repayments will “worsen PureGym's substantial cash consumption,” however, it expects improvements in trading and profit growth brought about by cost control, the hedging of energy costs and the maturation of recently opened sites will offset these increases.

The new backed senior secured notes largely have the same ranking, security, guarantees and covenants as the existing notes.

Pure Gym is in expansion mode, reporting that 70 per cent of its £107m capital expenditure in the first half of 2023 was allocated to expansion and IT.

The refinancing transaction will consume £80-85 million of cash, including transaction costs.

As of June 2023, the group had 1.855 million members across 566 owned gyms in the UK, Denmark, Switzerland and the US, as well as 16 franchised clubs in Saudi Arabia.

The company generated £515 million revenue in the year to June 2023 and a run-rate adjusted EBITDA of £128.4 million – an increase of 14 per cent and 19 per cent on the previous year.

Pure Gym is owned by private equity firm Leonard Green & Partners with 77 per cent of the equity and its management with 23 per cent.

Since early 2022, American investment business Kohlberg Kravis Roberts & Co (KKR), has also held £300 million in convertible preferred equity shares.

Moody’s says: “Assuming conversion to 22 per cent of equity on exit, Leonard Green & Partners would have a 64-67 per cent stake and management 11-14 per cent."

Barclays, RBC and Deutsche Bank are joint global coordinators for the raise, with ING and JP Morgan joint bookrunners.