In-Shape files bankruptcy, receives stalking horse bid from lenders

By Sarah Lizee

Olympia, Wash., Dec. 16 – In-Shape Holdings, LLC filed Chapter 11 bankruptcy on Wednesday in the U.S. Bankruptcy Court for the District of Delaware.

“Despite the company’s efforts, the series of club closures caused by Covid-19 and the government mandates over the nine-month period leading up to the petition date, and the resulting loss of revenue, caused a deterioration in the company’s liquidity position,” Sean K. Maloney, chief financial officer of In-Shape, said in a declaration.

“In the months leading up to the filing of these Chapter 11 cases, it became clear that, without additional liquidity through a sale or a financing transaction, the company would run out of cash and be unable to operate and would have no choice but to liquidate.”

The debtors have entered into a stalking horse agreement with In-Shape Acquisitions 2021, LLC, an entity formed by the company’s pre-petition secured lenders.

The purchase price includes a $45.3 million credit bid against the company’s proposed debtor-in-possession facility and its pre-petition credit facility, plus $250,000 in cash to cover post-closing and wind-down costs, an additional amount of cash to cover other specified obligations and assumption of all cure amounts for all purchased contracts and some other liabilities of the company.

The stalking horse agreement provides for a $1 million break-up fee and a $500,000 expense reimbursement.

Under the company’s proposed bidding procedures, competing bids would be due by Feb. 9, an auction would be held on Feb. 16, if needed, and a sale hearing would be held on Feb. 18.

Each bid must contain a purchase price that includes cash of at least $48.05 million and assumption of assumed liabilities.

DIP financing

The company is seeking court approval of an up to $30.3 million DIP term loan facility, consisting of a $15.3 million new money multi-draw term loan to be funded by the pre-petition first-lien lenders and a roll-up of $15 million of pre-petition first-lien obligations.

Interest will be 9% for senior loans, 10% paid in kind for junior loans and 6.5% paid in kind for roll-up loans. The debtors will pay an upfront fee of 2% of the new money commitments.

The facility will mature on the earliest of April 16, the consummation of a sale of substantially all of the debtors’ assets and the date that the obligations under the facility are accelerated.

Proceeds will be used to pay for the fees, costs and expenses incurred in connection with the debtors’ Chapter 11 cases and for working capital.

The company is seeking interim access to $5.1 million of the new money loan.

In-Shape is also seeking court approval to access the cash collateral of its pre-petition secured lenders.

Debt details

According to its petition, the company has $50 million to $100 million in assets and $100 million to $500 million in liabilities.

The company’s largest unsecured creditors are Aquiline Capital Partners LLC, based in New York, with an unsecured pre-petition debt deficiency claim in an undisclosed amount; ISHC Properties, LLC, based in Stockton, Calif., with a $9.39 million subordinated note claim; Realty Income Properties 12, LLC, based in San Diego, Calif., with a $6.16 million landlord claim; and SMS Management Co., based in Modesto, Calif., with a $1.13 million landlord claim.

In-Shape is a Stockton, Calif.-based health club operator. The company filed bankruptcy under Chapter 11 case number 20-13130.

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