Town Sports: Court denies term lenders’ motion to prevent asset sale

By Sarah Lizee

Olympia, Wash., Dec. 1 – Town Sports International, LLC can go forward with the sale of substantially all of its assets to New TSI Holdings, Inc., following the court’s denial of a motion filed by an ad hoc group of term lenders that wanted to temporarily block the sale, according to an order filed Monday.

On Friday, the lenders filed an emergency motion asking the court for a temporary injunction to enjoin the closing of the sale until the court determines if the buyer can provide the purchase price, including the credit bid consideration, to the debtors.

“Should the sale close as contemplated by the debtors and the buyer, the pre-petition lenders will face an outcome that was never contemplated under the sales order: an exchange of their entire pre-petition loan in exchange for zero recovery,” the group said in its motion.

“Principals of 507 Capital and Peak Credit LLC (together, Peak), who appear to have now effectively stepped in for Tacit but who were not involved in negotiating the terms and mechanics of the sale, are suddenly asserting ... that the sale can somehow be closed without the buyer delivering the purchase price required under the asset purchase agreement.”

The group said that under the agreed-upon sale process, at the direction of the ad hoc term lender group, the pre-petition lenders would contribute $80 million of the loans under the credit agreement in exchange for debt and equity issued by the buyer.

However, on Nov. 23, counsel for Peak indicated its view that the debtors and the buyer could close the sale without needing the contribution of the loans under the credit agreement and the credit bid from the agent, on behalf of the pre-petition lenders.

“As the loans under the credit agreement and the right to credit bid were never acquired by the buyer, the buyer has no right to credit bid the loans,” the group said.

Judge Christopher S. Sontchi said in Monday’s order that the pre-petition agent, on behalf of the lenders, had transferred the right to credit bid the credit bid consideration to the buyer, and the buyer is authorized to contribute the credit bid consideration at closing of the sale.

Town Sports is a Jupiter, Fla.-based owner and operator of fitness clubs. The company filed bankruptcy on Sept. 14 under Chapter 11 case number 20-12168.

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