Bally Total Fitness Holding Corp. said Monday that bondholders agreed to support a restructuring plan calling for the company to seek temporary bankruptcy protection while its fitness clubs operate as normal.
Holders of a majority of the company’s notes due in 2011 and more than 80 percent of holders of bonds due this year agreed to vote for the plan, Chicago-based Bally said.
The nation’s largest gym operator, which hasn’t posted an annual profit since 2001, said bankruptcy will help it retain cash that would have been used for debt payments. The company will cancel its shares, putting Bally in the hands of bondholders. Bally said the plan would cut its debt by $150 million, reduce interest costs by $29 million a year and provide cash to invest in operations.
“We are pleased to have such strong support for the plan,” said Chief Restructuring Officer Don Kornstein.
Bally, which operates more than 375 gyms in 26 U.S. states, Mexico, Korea, China and the Caribbean, said it will file a bankruptcy petition “in the near future.”
Under a modification to its prepackaged bankruptcy plan, Bally also will save $14 million in cash by taking on more debt instead of making a July 15 interest payment, said spokesman Matt Messinger.
Bally said it would increase the size of its proposed rights offering to $90 million, giving the company additional cash upon its exit from bankruptcy. Under the previous deal, the bondholders, including Goldman Sachs Group Inc., Tennenbaum Capital Partners LLC and Anschutz Investment Co., agreed to purchase just $77.5 million in a notes offering.
Bally will increase interest on its 10.5 percent senior notes due 2011 to 12.375 percent starting July 16, and will have $247.3 million in senior notes outstanding as it emerges from bankruptcy. Holders of Bally’s senior notes due 2011 would receive a fee of 2 percent of their notes’ value in exchange for waiving defaults on the notes and agreeing to a change in control of the company.
