24 Hour Fitness Chapter 11 plan confirmed; expects to emerge by year-end

By Sarah Lizee

Olympia, Wash., Dec. 22 – 24 Hour Fitness Worldwide, Inc.’s Chapter 11 plan of reorganization was confirmed late Monday by the U.S. Bankruptcy Court for the District of Delaware, according to a press release.

The company said it expects to emerge from Chapter 11 by Dec. 31.

As previously reported, the company announced that it has entered into a restructuring support agreement with lenders beneficially holding about 73% of the company’s secured debt and about 65% of its senior unsecured notes on the terms of a comprehensive restructuring plan.

The financial restructuring will reduce about $1.2 billion of funded debt, provide increased financial flexibility to help navigate through the Covid-19 pandemic and better position 24 Hour Fitness for long-term success, the company said.

In addition, the plan calls for a new money rights offering under which eligible holders of allowed debtor-in-possession claims will be distributed subscription rights to purchase 48,165,893 shares of new preferred equity interests issued by the reorganized parent. The rights offering shares issuable under the plan will have an aggregate investment amount of $65 million, which may be increased to up to $80 million with creditor consent.

Upon emergence from Chapter 11, the debtors will enter into a senior secured term loan facility in an aggregate initial principal amount of up to $200 million, with an incremental uncommitted facility of up to $200 million. The loans will mature five years from closing and will bear interest at Libor plus 100 basis points payable in cash and 400 bps payable in kind. Interest will convert to Libor plus 600 bps, subject to a 1% Libor floor, payable in cash, upon the occurrence of both two-quarter trailing EBITDA exceeding $67.5 million and the fixed charge coverage ratio exceeding 1.8x, in each case for two consecutive fiscal quarters.

Holders of priority non-tax claims will be paid in full in cash or have their claims reinstated.

Holders of other secured claims will receive payment in full in cash, the collateral securing their claims or reinstatement of their claims.

Holders of pre-petition credit facility claims will receive their pro rata share of 5% of the new common equity interests, subject to dilution by the DIP backstop equity issuance, the warrants, the management incentive plan and the conversion, if any, of new preferred equity interests into new common equity interests.

For general unsecured claims that are (a) less than or equal to $250,000 or (b) held by ineligible holders and are allowed in an amount greater than $250,000 but less than or equal to $400,000, holders will receive in cash 1% of the amount of their claims, to be funded from the general unsecured claim recovery cash pool.

Otherwise, general unsecured claimholders will receive their pro rata share of warrants, provided that if the number of holders receiving warrants exceeds 1,500 the debtors may provide these claimholders cash recovery in lieu of the pro rata share of warrants.

Holders of membership agreement claims will receive a $25 gift card if their claim is less than or equal to $250, and a $50 gift card otherwise.

Intercompany claims will be adjusted, continued, settled, reinstated, discharged or eliminated in a tax-efficient manner as determined by the debtors or the reorganized company, but in no event paid in cash.

Section 510(b) claims will be canceled with no distribution.

Intercompany interests will be canceled or reinstated, or receive other tax-efficient treatment determined by the debtors or the reorganized company.

Parent equity interests will be canceled with no distribution.

Lazard is acting as financial adviser, FTI Consulting is acting as restructuring adviser and Weil, Gotshal & Manges LLP and Ropes & Gray LLP are acting as the company’s legal counsel.

PJT Partners is financial adviser and O’Melveny & Myers LLP is legal counsel to the ad hoc group of debt holders.

24 Hour Fitness is a San Ramon, Calif.-based fitness club operator. The company filed bankruptcy on June 15 under Chapter 11 case number 20-11558.

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