New York Sports Clubs Owner Plans Debt Extension With Sweetener

(Bloomberg) -- The owner of the New York Sports Clubs chain is pitching a fresh deal to push out the looming debt maturity wall at the gym operator.

Town Sports International Holdings Inc. has approached existing lenders to refinance its borrowings, which come due next year, according to people with knowledge of the matter. The company is telling investors that $50 million in new capital will be made available if it’s able to refinance the loan, the people said. They asked not to be identified because the information isn’t public.

The new plan would fully pay down the first-lien loan in exchange for lenders rolling into a new, longer-dated term loan that would pay higher interest. The company is working with Deutsche Bank AG to help refinance the loan of about $178 million, the people said. The new $50 million financing will be structured as more junior ranking, second-lien debt, they said.

Representatives for Deutsche Bank declined to comment. Officials at Town Sports, based in New York, didn’t provide an immediate comment.

Value Lost

Shares of Town Sports are down more than 70% this year and its infrequently traded term loan sells for about 75 cents on the dollar as analysts fret over a slide in cash flow and the refinancing risk. A previous refinancing plan earlier this year was never carried out.

Town Sports’ standing in credit markets could be upgraded if it refinances its term loan “on economic terms that allow the company to generate a modest level of free cash flow and extends its maturity by at least three years,” according to a Moody’s Investors Service report last month.

If Town Sports is unable to refinance its term loan, the company doesn’t have enough cash or alternative sources of liquidity to pay its obligations, Moody’s said.

An investment fund owned by Town Sports Chief Executive Officer Patrick Walsh recently boosted its holdings, purchasing 2.8 million shares from one of the company’s largest shareholders, with the option to purchase more shares before the end of the year, according to a regulatory filing.

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 almost 200 fitness studios with a majority of them located in the New York metro area.

To contact the reporters on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net;Katherine Doherty in New York at kdoherty23@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Nicole Bullock

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