Harbinger files alternative plan of reorganization for Bally; Harbinger to buy 100% of new stock

By Caroline Salls

Pittsburgh, July 31 - Bally Total Fitness Holding Corp. shareholder Harbinger Capital Partners filed a draft of an alternative pre-packaged Chapter 11 plan of reorganization with the Securities and Exchange Commission.

Harbinger said it is willing "to provide the current equity holders with some combination of cash and equity in the reorganized company" after Bally announced its plan to move forward with a its own prepackaged reorganization.

As previously reported, more than 99% of the holders of Bally's 10½% senior notes due 2011 and 78% of the holders of its 9 7/8% senior subordinated notes due 2007 voted in favor of the prepackaged plan.

Bally said votes for its plan of reorganization represent 99% of the outstanding principal amount of the senior notes and 99% of the outstanding principal amount of the senior subordinated notes held by noteholders who cast ballots.

Bally said its plan reduces the principal outstanding on the senior subordinated notes by $150 million, reduces cash interest expense by as much as $30 million per year and provides the company with $90 million in capital through the issuance of new senior subordinated notes.

Harbinger presented its own plan to the company as part of a schedule 13D filing with the Securities and Exchange Commission. The investor owns 4,619,450 shares or 11.2% of Bally's outstanding stock.

Harbinger has remained in discussions with Bally regarding the revised shareholder plan as well as in negotiations with the proposed DIP lender and a third-party lender to obtain committed financing.

The plan investors, including Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund LP, have agreed to purchase 100% of the new common stock in the reorganized company for $200 million.

The plan draft said the reorganized company will issue $247.34 million in new senior second-lien notes and $200 million in new senior subordinated notes due 2013.

Also according to the plan draft, the company plans to obtain a $292 million debtor-in-possession facility to refinance pre-bankruptcy lenders claims and for general corporate purposes.

Treatment of creditors under the plan will include:

• Holders of administrative claims, priority non-tax claims, other secured claims and unsecured claims will be paid in full in cash;

• Holders of pre-bankruptcy lender claims will either have their claims paid in full in cash or assumed by the reorganized company;

• Holders of pre-bankruptcy senior notes claims will either be paid in full in cash or have their notes replaced by the new senior second-lien notes. In addition to new notes, these creditors will receive a share of a $4.7 million notes indenture amendment fee;

• Holders of pre-bankruptcy senior subordinated claims will receive either full payment in cash, a share of the new subordinated notes or a combination of new notes and cash, provided, however, that the cash payment to senior subordinated noteholders must be at least $122 million;

• Holders of rejection claims will receive full cash payment on the plan effective date or cash paid in installments over a maximum of five years, plus 12 3/8% interest;

• Holders of subordinated claims and old common stock of Bally will receive their share of a $16.5 million old common stock cash amount; and

• Holders of unexercised old equity interests will not receive any distribution under the plan.

Bally is a Chicago-based fitness center operator.

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