Bally toggle notes trustee fights for unsecured claim distribution

By Caroline Salls

Pittsburgh, Aug. 3 - Bally Total Fitness Holding Corp. indenture trustee HSBC Bank USA, NA filed a lawsuit Friday that asks the U.S. Bankruptcy Court for the Southern District of New York to rule that the holders of Bally's 15 5/8% and 14% subordinated toggle notes due 2013 should be treated as general unsecured creditors under the company's reorganization plan.

According to the trustee's complaint, the indenture for the toggle notes exempts the holders of the 15 5/8/% notes and 14% notes from any obligation to pay a portion of their distribution of permitted junior securities to holders of the company's 13% notes.

The trustee said unsecured creditors are slated to receive only stock and warrants under Bally's plan, which fall outside of the scope of the indenture's subordination provisions.

Bally, a Chicago-based fitness center operator, filed for bankruptcy on Dec. 3, 2008. Its Chapter 11 case number is 08-14818.

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