New York Sports Club Owner Warns of Bankruptcy With Gyms Shut
The owner of the New York Sports Clubs chain said it may need to file for bankruptcy “in the near future”.
(Bloomberg) -- The owner of the New York Sports Clubs chain said it may need to file for bankruptcy “in the near future” as many gyms across the country remain closed to stem the spread of Covid-19.
Town Sports International is in talks with its lenders to refinance a loan coming due this fall as its cash flow and liquidity continue to tighten, the company said in a regulatory filing Tuesday. The gym owner and operator said it doesn’t have enough cash on hand to repay the debt when it comes due in November.
The company missed a payment on its revolver last month, violating terms of the debt. Lenders could send the company a notice of default and demand immediate repayment of all obligations, but none has done so yet, Town Sports said in the filing.
Town Sports was downgraded by Moody’s Investors Service and S&P Global Ratings in recent days, with the credit graders citing the firm’s weak liquidity and restructuring risk. The company’s $15 million revolver expired on August 14 with $14.2 million outstanding, putting the company in default, Moody’s said.
The gym owner said that if it files for bankruptcy, it will seek around $80 million in financing to cover the costs. It also warned that shareholders could be wiped out.
Pandemic Pain
The fitness industry is reeling from forced closures due to the pandemic. Gold’s Gym International Inc. sought court protection from its creditors in May. 24 Hour Fitness Worldwide Inc. filed for bankruptcy in June, unable to keep up with its own debt payments with gyms shut nationwide.
Even before the virus shuttered the global economy, a number of gym chains were struggling with onerous debt loads. Town Sports, which operates the New York, Boston, Philadelphia and Washington Sports Clubs, was looking for a financial reprieve through a deal to buy the indoor cycling studio business of Flywheel Sports, owned by Kennedy Lewis Investment Management.
The gym chain, with 600,000 members, wanted to use part of the financing from Flywheel’s owners to replace the loan coming due in November. But plans fell apart, and the Town Sports loan has been trading for around 16 cents on the dollar, according to Bloomberg data.
New York Sports Clubs began operations as a cluster of squash clubs in the 1970s before introducing exercise classes and expanding up and down the U.S. East Coast. The company operates about 200 fitness studios, with a majority in the New York metro area.
New York Governor Andrew Cuomo is letting gyms in the state reopen, but with capacity limited to 33%. Customers and staff must wear masks at all times, and fitness centers must meet strict health and air-ventilation guidelines.
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