Bally exits bankruptcy; JPMorgan, Anchorage hold majority share

By Caroline Salls

Pittsburgh, Sept. 1 - Bally Total Fitness has emerged from Chapter 11 bankruptcy, according to a company news release.

Bally's plan of reorganization was confirmed on Aug. 19 by the U.S. Bankruptcy Court for the Southern District of New York.

"Bally is moving in the right direction as we continue to systematically improve every aspect of this company," chief executive officer Michael Sheehan said in the release.

"With the dramatic restructuring of our balance sheet and improved financial performance, Bally is now positioned to put 100% of our energy toward improving the customer experience and growing our business.

"The unparalleled financial flexibility we have after emerging from bankruptcy will allow us to make the investments necessary to build Bally into the preeminent fitness chain in the country."

The plan, which Bally said includes financing from JPMorgan Chase Bank, an affiliate of Anchorage Advisors LLC, Wells Fargo Foothill LLC and CIT Business Credit, will enable the company to reduce its debt by $700 million, to less than $100 million.

Holders of Bally's pre-bankruptcy secured debt received 94% of the equity in the reorganized company, with JPMorgan and Anchorage to own a majority interest.

Reorganized Bally will issue 3% of its equity, along with warrants to acquire an additional 5%, to holders of some general unsecured claims.

Plan creditor treatment

Treatment of creditors will include:

• Holders of $1 million in other priority claims will recover 100% in cash;

• Holders of $2.52 million to $24.37 million in other secured claims will recover 100% either in cash, reinstatement of the claim or the return of the collateral securing the claim;

• Holders of $50 million in pre-bankruptcy revolver claims will recover 100% through a share of the company's exit revolver;

• Holders of $7.42 million in pre-bankruptcy swap claims will recover 100% through a new swap note;

• Holders of $162 million in pre-bankruptcy term loan claims will recover 100% through the term loan distribution;

• Holders of $80 million in term loan deficiency claims will recover zero to 1.32% through a share of the unsecured claims distribution;

• Holders of $247.34 million in senior note claims will recover 0.79% to 1.52% through a share of the unsecured claim distribution;

• Holders of $75 million to $475 million in general unsecured claims will recover 0.79% to 1.52% through a share of the unsecured claim distribution;

• Holders of $23.71 million in convenience claims will recover 1.06% in cash;

• Holders of $231.25 million in subordinated note claims will recover 0.79% to 1.52% through a share of the unsecured claim distribution;

• Intercompany claims that are not specifically reinstated will be deemed eliminated in full; and

• Holders of equity interests will receive no distribution.

Exit financing

As previously reported, Bally received court approval in July of a total of $96.5 million in exit financing commitments.

Specifically, Wells Fargo Foothill LLC and CIT Business Credit have agreed to provide a $50 million revolving credit facility that will mature on Dec. 31, 2011 and bear interest at Libor plus 600 basis points, and Anchorage Crossover Credit Finance, Ltd., Anchorage Crossover Credit Offshore Master Fund, Ltd., Anchorage Capital Master Offshore, Ltd. and JPMorgan Chase Bank, NA have agreed to provide a $39 million term loan and $7.5 million swap term loan that mature June 15, 2014 and bear interest at Libor plus 600 bps.

New board

In addition to Sheehan and current board members Eugene I. Davis and Timothy J. Bernlohr, the reorganized company's board of directors will include Kevin J. Corgan and Michael Kerrane of JP Morgan, Daniel Allen and Aaron N. Rosenstein of Anchorage and Fredric F. Brace.

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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