Town Sports lacks funds to repay term loan when due, seeks refinancing

By Wendy Van Sickle

Columbus, Ohio, Sept. 1 – Town Sports International LLC does not have the funds repay the balance on its 2013 term loan when it comes due Nov. 15 and is in talks with its lenders to attempt to refinance the loan, according to an 8-K filed with the Securities and Exchange Commission.

Further, the company reported it is in breach of one of its covenants under the credit agreement as of Dec. 31, 2019. Deutsche Bank AG is the credit agreement’s administrative agent, and KeyBank NA is the syndication agent.

Town Sports said events related to the Covid-19 pandemic have had a material adverse effect on the results of its operations, cash flows and liquidity and that it does not have sufficient cash to satisfy its obligations under the term loan at maturity. The company had a principal balance of $177.3 million on the $325 million term loan as of March 31.

“The company is currently working with prospective lenders to refinance the 2013 term loan facility in advance of its maturity date; however, there can be no assurance that the company will be able to refinance its debt, or if it is able to refinance its debt, that such financing will be on terms favorable to the company,” the filing states.

The company said there is “substantial doubt” as to its ability to continue as a going concern within a year after its financial statements are issued, which is considered an event of default under the term loan that allows the lenders to call the debt early, as is the covenant breach.

Additionally, the company also failed to repay all amounts outstanding under a $15 million revolver that matured on Aug. 14.

The lenders under the credit agreement may cause the issuance of a notice of default to the company and immediately exercise the available remedies, including declaring the principal of and any accrued interest of all loans, notes and all obligations to be immediately due and payable.

As of Sept. 1, no lender under the credit agreement had commenced any legal action against the company.

“As a result of the company’s strained cash position and current inability to repay all amounts outstanding under the 2013 term loan facility and 2013 revolving loan facility, and the challenges of Covid-19, we currently anticipate that TSI LLC, Holdings II and certain other subsidiaries of the company that constitute the subsidiary guarantors ... may be forced to file a petition for relief under the United States Bankruptcy Code ... in the near future,” the filing states.

“Such a filing would subject us to the risks and uncertainties associated with bankruptcy proceedings and may place equity holders in the company at significant risk of losing some or all of their investment in TSI LLC, Holdings II ... In addition, it is possible that the company may be forced to file a petition for relief under the Bankruptcy Code, which may further exacerbate the risks described herein and further increase the likelihood that our equity holders would lose some or all their investment in the company.

“A bankruptcy filing by such entities, or by the company, could cause a material adverse effect on our business, financial condition, results of operations and liquidity. In the event of such bankruptcy filing, the company expects that it will need to raise up to approximately $80 million in financing to fund the costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls.”

Town Sports is a Jupiter, Fla.-based owner and operator of fitness clubs.

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