New York Sports Clubs Owner Plans to File for Bankruptcy
(Bloomberg) -- The owner of New York Sports Clubs is planning to file for bankruptcy as soon as Friday after talks collapsed over financing that would have helped the chain weather the Covid-19 pandemic. The shares fell 14% in New York trading.
Town Sports International Inc. had been negotiating a potential $80 million capital injection from Kennedy Lewis Investment Management, according to people with knowledge of the matter. The investment firm backed away after Town Sports realized it would need more money and asked for $200 million, said the people, asking not to be identified discussing a private matter.
Town Sports, which has more than 150 locations mostly in the Northeast U.S., would use the bankruptcy process to renegotiate its leases, asking landlords in some cases for a reduction of nearly half current rent costs, one of the people said. Depending on the outcome of those talks, the company could decide to close as many as half of its locations.
Representatives for New York-based Town Sports and Kennedy Lewis declined to comment. Town Sports, which trades under the ticker CLUB, dropped 5.5 cents to 32.5 cents a share at 9:52 a.m. in New York.
The details remain fluid, and no final decision on permanent closures has been made, the people said. The company’s restructuring plan could change depending on market conditions and virus-related gym closings, they said.
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 debt payments with gyms shut nationwide. New York and New Jersey allowed fitness centers to re-open this month, but at limited capacity and with customers and staff required to wear masks.
Town Sports, which has reopened only about half of its 30 Manhattan locations, has been trying to refinance a loan coming due in November. Negotiations continue, but lenders have been reluctant to put in new money or extend the debt, the people said. Kennedy Lewis bought a large chunk of the company’s borrowings when they were trading at a steep discount, the people said.
Town Sports is in discussions with other third parties who could support the company through its restructuring process, the people added. Chapter 11 bankruptcy allows a company to cut its debt load and close underperforming locations while it seeks to turn around its business.
Even before the virus nearly ground the global economy to a halt, 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 previously looking for a financial reprieve through a deal to buy the indoor cycling studio business of Flywheel Sports, which was owned by Kennedy Lewis.
Town Sports, which has around 600,000 members, wanted to use part of the financing from Flywheel’s owners to replace its loan due in November. But the earlier plans fell apart, and the loan has been trading for less than 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.
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