Mindbody, Software Maker for Gyms, Slapped With Higher Loan Cost

(Bloomberg) -- Lenders have hiked the interest rate on a loan to Mindbody Inc., which makes software used by gyms and spas, after shutdowns caused by the pandemic battered its business.

Pricing on a senior secured term loan due February 2025 has been hiked to 8.5 percentage points over the London interbank offered rate from 7 percentage points previously, according to a Securities and Exchange Commission filing earlier this month from business development company Owl Rock Capital Corp., the administrative agent on the debt.

Some of the interest on the loan, about 1.5 percentage points, will be paid with more debt, a so-called payment-in-kind arrangement that can provide relief to borrowers under financial strain by allowing them to skip cash payments. Such debt also comes with more risk to lenders.

The $475 million loan helped finance the $1.9 billion buyout of the company by Vista Equity Partners in February 2019, and was provided by lenders led by Owl Rock Capital. The interest rate on a revolving loan also due February 2025 has been increased to 8 percentage points over Libor from 7 percentage points over the benchmark rate earlier this year.

Debt stumbles by mid-sized U.S. companies are on the rise as a wide swath of businesses face declines in revenue as a result of Covid-related shutdowns. Borrowers in the fitness industry are hopeful that a reopening of gyms across the country could pave the way for a bounce back in revenue in the coming months.

Mindbody said last month it was replacing Chief Executive Officer Rick Stollmeyer with President Josh McCarter, noting that the company was in a period of “time of transition and innovation”. In April, it launched a virtual platform, which allows its fitness, beauty and wellness customers to upload and share pre-recorded videos with their own clients.

In a Friday letter to shareholders, related lender Owl Rock Technology Finance Corp., a tech-focused BDC, said Mindbody was its sole investment performing below expectations.

“We entered into this investment at a reasonable loan-to-value and despite being directly impacted by the Covid-related stay-at-home orders, we believe it continues to offer attractive risk-adjusted returns,” Owl Rock Technology Finance Chief Executive Officer Craig Packer and portfolio managers Erik Bissonnette and Pravin Vazirani wrote in the letter.

The BDC, which focuses on companies with multi-year contracts for its products and services, said its portfolio has “held up quite well thus far” even amid the current uncertainty.

A spokesman for Owl Rock declined to comment. Emails seeking comment from Mindbody and private equity sponsor Vista weren’t immediately returned.

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