Bally Total Fitness agrees in principle on terms of pre-packaged Chapter 11 notes restructuring plan

By Caroline Salls

Pittsburgh, May 31 - Bally Total Fitness Corp. has reached an agreement in principle on the proposed terms of a consensual restructuring with holders of more than 80% of its 9 7/8% senior subordinated notes due 2007, which the company plans to implement through parent Bally Total Fitness Holding Corp.'s pre-packaged Chapter 11 bankruptcy filing, according to a company news release.

Bally said the restructuring will reduce the principal outstanding on its existing subordinated notes by $150 million by exchanging them for a new class of subordinated notes, common equity and the right to participate in a $77.5 million rights offering.

The consenting senior subordinated noteholders, including affiliates of Tennenbaum Capital Partners, LLC, Goldman Sachs & Co. and Anschutz Investment Co., have agreed in principle to consent to the proposed restructuring plan and to subscribe to their portion of new senior subordinated notes to be issued under the $77.5 million rights offering as part of the proposed plan.

All holders of existing senior subordinated notes and some other unsecured creditors will be entitled to participate in the rights offering.

The consenting noteholders have agreed to backstop the rights offering by purchasing any notes not subscribed for under the rights offering.

"We are pleased to have achieved such strong support for a consensual restructuring that reduces our debt, reduces our annual cash interest obligations by approximately $29 million and provides the new cash and cash availability to continue to serve our members and invest in our fitness centers," Bally's chief restructuring officer and interim chairman Don R. Kornstein said in the release.

"This agreement in principle with the consenting senior subordinated noteholders lays the foundation for a restructuring process that will enable us to invest in our clubs and upgrade our business model."

Bally said it will also enter into a plan support agreement with the consenting senior subordinated noteholders to confirm their commitment to vote for the plan and to backstop the rights offering.

The plan support agreement will also contain customary provisions governing interim operations of the company and restricting the terms of compensation arrangements, new contracts and modifications to bank financing agreements.

The Chapter 11 filing is conditioned upon receipt of the approval of the proposed plan of reorganization by 66 2/3% in principal amount and a majority in number of the holders of the company's 10½% senior notes due 2011 who vote on the plan.

Bally said it expects to begin the formal vote solicitation in mid-June, and, if the necessary votes are received, the pre-packaged Chapter 11 filing would be made in July.

Unless it receives superior proposals from other funding sources or existing constituencies, the company said it expects to complete its reorganization within 60 days of the bankruptcy filing.

Restructuring plan terms

The terms of the proposed plan will include:

• Subject to the consent of the company's senior lenders, Bally's secured credit facility would be amended to waive all existing defaults and any provision triggered by implementation of the proposed plan, and to provide increased covenant flexibility.

Bally said it may enter into a debtor-in-possession financing facility, although the DIP is not necessary to fund its continuing operations;

• The principal, interest rate, maturity and guarantees on the company's senior notes would remain the same;

• Upon the effective date of the proposed plan, senior noteholders would receive a fee of 1% of the face value of the notes;

• The senior notes indenture would be amended to waive all existing defaults and any provisions triggered by implementation of the proposed plan, including the change of control put option; eliminate the requirement that the company file and provide Securities and Exchange Commission reports, although the company will be required to provide annual and quarterly financials, and to increase the permitted debt basket for the senior credit facility to $325 million and the debt basket for purchase money debt and capital leases to $100 million;

• Holders of the existing senior subordinated notes and some unsecured creditors would receive their share of $150 million in new subordinated notes, representing 50% of their existing principal, non-detachable rights to participate in the rights offering for the new senior subordinated notes and 100% of the new common stock in the reorganized company.

The new subordinated notes would mature five years from the effective date of the proposed plan and would bear interest at 13% per year if paid in kind or 11.5% if paid in cash, at the company's option upon satisfaction of a toggle covenant of 2.25-to-1.00 minimum interest coverage and $50 million minimum liquidity.

The new senior subordinated notes to be issued under the rights offering will rank senior to the new subordinated notes;

• The company and its subsidiaries may reject selected leases and other contracts in the bankruptcy; and

• Existing equity would be cancelled and existing equity holders will receive no distribution under the plan.

Bally also said it believes it will be able to file its 10-K for the year ended Dec. 31 by the end of June.

Bally is a Chicago-based fitness center operator.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.