24 Hour Fitness files Chapter 11 bankruptcy, cites impact of Covid-19

By Caroline Salls

Pittsburgh, June 15 – 24 Hour Fitness Worldwide, Inc. filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware “due to the disproportionate impact of the Covid-19 pandemic,” according to a company news release.

24 Hour Fitness said it is continuing to reopen clubs in a phased approach, with a majority of its footprint expected to reopen by the end of June.

“If it were not for Covid-19 and its devastating effects, we would not be filing for Chapter 11,” chief executive officer Tony Ueber said in the release. “With that said, we intend to use the process to strengthen the future of 24 Hour Fitness for our team and club members, as well as our stakeholders.

“We expect to have substantial financing with a path to restructuring our balance sheet and operations to ensure a resilient future.”

24 Hour Fitness requested court approval to reject the unexpired leases at 133 underperforming club locations. The company said these locations will be permanently closed.

The company said the decision to close these locations was made after evaluating the earnings and occupancy of each.

“Given the overall losses that the debtors have been incurring on the underperforming clubs and previously closed clubs, and their lack of strategic value in the debtors’ go-forward business plan, the debtors have concluded, in consultation with their advisers, that the club leases are unlikely to generate significant value for the debtors’ estates,” according to the motion.

In conjunction with the Chapter 11 filing, the company said it expects to secure $250 million in debtor-in-possession financing, which, combined with the company’s cash from operations, is expected to provide sufficient liquidity it to continue operations, including club reopenings, without interruption during the Chapter 11 process.

Wilmington Trust, NA is the DIP financing agent.

The facility will mature 12 months from closing.

Interest will accrue at the Base rate plus 900 basis points or Libor plus 1,000 bps, both with a 1% floor.

The company is seeking interim access to $50 million of the DIP financing.

24 Hour Fitness is also seeking court approval to continue paying team members’ wages, salaries and benefits and to continue its various member programs.

According to court documents, 24 Hour Fitness has $1 billion to $10 billion in both assets and debt, including $1.43 billion in funded debt.

The company’s largest unsecured creditors are Wells Fargo of New York, with a $500 million unsecured notes claim; Kellermeyer Bergensons Services of Maumee, Ohio, with an $8.83 million trade claim; Veritas Media Group, LLC of Oakland, Calif., with a $6.29 million trade claim; Axiom Construction Co. LLC of Spring, Tex., with a $4.21 million trade claim; Raymond Construction Inc. of Dallas, with a $2.76 million trade claim; DGC Capital Contracting of Mount Vernon, N.Y., with a $2.64 million trade claim; Club Resource Group Inc. of Tracy, Calif., with a $2.56 million trade claim; AT Kearney Inc. of Chicago, with a $2.52 million trade claim; Muscle Foods USA of Baltimore, with a $2.43 million trade claim; and Epsilon Agency LLC of Chicago, with a $2.22 million trade claim.

Lazard is acting as financial adviser, FTI Consulting is acting as restructuring adviser, and Weil, Gotshal & Manges LLP is acting as the company’s legal counsel in connection with the Chapter 11 cases.

24 Hour Fitness is a San Ramon, Calif.-based fitness-club operator. The Chapter 11 case number is 20-11558.

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