Bally Noteholders Approve Amended Plan

CHICAGO – The noteholders of Bally Total Fitness have approved the amended reorganization Chapter 11 plan proposed by stockholder Harbinger Capital Partners Funds, and all parties have signed a restructuring support agreement, Bally announced today.

Specifically, holders of more than 55 percent of Bally’s 10 ½ percent senior notes due 2011 and 80 percent of its 9 7/8 percent senior subordinated notes approved the amended plan. Senior subordinated noteholders include Tennenbaum Capital Partners, Goldman Sachs & Co. and Anschutz Investment Co.

“Harbinger presented a superior proposal, and Bally did a remarkable job bringing the parties together,” Michael E. Tennenbaum, senior managing partner of Tennenbaum Capital Partners, said in Bally’s press release.

Harbinger also signed an investment agreement that provides for its $223.6 million investment in exchange for 100 percent of the common equity of reorganized Bally. The investment agreement and the restructuring support agreement are subject to pending approval from the Bankruptcy Court for the Southern District of New York. A hearing is scheduled for Tuesday.

“We are confident in the company and are pleased to have the support of these senior and subordinated noteholders for the restructuring proposal,” Howard Kagan, managing director and director of investments of Harbinger Capital Partners, said in the release. “Additionally, we look forward to Bally presenting the amended plan to the bankruptcy court next week and to moving forward with the restructuring process with an eye toward a quick emergence from Chapter 11.”

Don Kornstein, Bally’s interim chairman and chief restructuring officer, added, “We appreciate the overwhelming support of our noteholders for our amended plan of reorganization and will seek to execute it and emerge promptly from Chapter 11 protection. We are also grateful for the confidence that Harbinger has expressed in Bally through its extraordinary investment and look forward to partnering with Harbinger to enhance our capital structure, strengthen our balance sheet and make the capital investments necessary to meet the needs of our members while improving our operating performance.”

If the Harbinger-funded restructuring cannot be consummated, Bally can move forward with the former plan, in which the subordinated noteholders would backstop a $90 million rights offering of new senior subordinated notes.

The differences between the amended plan and the existing plan include:

  • The annual interest rate payable under the senior notes would be increased to 13 percent (from 12 3/8 percent in the existing plan), with corresponding increases in the premiums payable for early redemption. Senior noteholders would otherwise receive the same treatment as provided in the existing plan.
  • Subordinated noteholders would receive an immediate cash payment of $123.5 million in the aggregate, with the remaining balance of the subordinated notes to be satisfied through the issuance of approximately $200 million in new subordinated notes of reorganized Bally. The annual interest rate payable under the new subordinated notes would be increased by 200 basis points to 15 5/8 percent as the payment-in-kind interest rate and 14 percent as the cash pay interest rate. Subordinated noteholders would otherwise receive the same treatment as provided in the existing plan, in which case they would not receive any cash payments.
  • Holders of all other unsecured claims would receive full payment in cash, in some cases over time with interest.
  • Holders of Bally’s existing common stock and certain other claims treated as equity in bankruptcy would receive $16.5 million in the aggregate. Under the existing plan, existing common stockholders would receive no distribution.

It is unclear what role Liberation Investment Group, which combined with Harbinger Capital Partners is Bally’s second-largest shareholder, will play in the reorganized Bally. Liberation and Harbinger had proposed an alternate plan of reorganization in early July that was initially rejected by Bally. When reached today, a person in Liberation executive Manny Pearlman’s office said that Pearlman is “not talking to reporters right now.”