Town Sports International filed for a voluntary Chapter 11 bankruptcy on Sept. 14 in an effort to restructure, the company announced.
The filing, which was made in the United States Bankruptcy Court for the District of Delaware, affects Town Sports brands New York Sports Clubs, Boston Sports Clubs, Philadelphia Sports Clubs, Washington Sports Clubs, Lucille Roberts, Total Woman, and Around the Clock Fitness brands.
The filing lists the number of creditors as between 10,001 and 25,000, and the company’s estimate assets and liabilities both at between $500 million and $1 billion.
The company stated that it is not going out of business and will continue to operate the brands through the restructuring, including continuing to pay employees and offer benefits as usual. All facilities will continue to operate as normal.
In an announcement on its website to members, Town Sports stated: “Restructuring is the best way to properly respond to the COVID-19 pandemic, with the long-term goal to emerge as a thriving powerhouse in the fitness industry. The goal is to emerge from Chapter 11 as an even stronger company, better positioned to serve members into the future.”
The publicly traded company failed to file its first quarter and second quarter financials with the Security and Exchange Commission on time, finally filing its first quarter financials on Sept. 4. Its first quarter revenue for its 185 clubs was $98 million compared to $116.6 million during the same period the prior year, and it had operating losses of $142 million for the quarter.
During second quarter 2020 when many of the company’s clubs were forced to temporarily close due to the COVID-19 pandemic, the company permanently closed eight clubs, and it expected to permanently close additional clubs in the third quarter, it said in the first quarter filing.
Town Sports failed to pay outstanding revolver balances that were due Aug. 14. Its 2013 Term Loan Facility of $177.78 million was due on Nov. 15, 2020, but the company did not have sufficient sources of cash to satisfy this obligation and a plan to refinance it in advance of its maturity date fell through.
Earlier this year, Town Sports worked on a deal to purchase Flywheel, but it was contingent on the approval of its debt holders, and that deal fell through. The deal was originally set up to help pay down part of the $177.78 million loan due in November and could have delayed the loan’s maturity for another four years.
Most of the company’s locations were closed in mid-March due to the COVID-19 pandemic, which worsened the company’s financial position. The company had to lay off most of its 7,000 staff members and it stopped paying rent. In April, the company first noted that a bankruptcy might be possible.
Management had been in talks to get financing to allow it to reopen clubs as states began lifting shutdown orders. Most of Town Sports’ locations are in the Northeast. New York and New Jersey only allowed clubs to reopen recently and at limited capacity.
For now, Town Sports said it won't permanently close any of its nearly 200 gyms, which has about 605,000 members. However, as part of the process, the company can petition to have leases renegotiated or rejected (which would mean closing a location) to save on rent. Those petitions must be approved by the court.
Vendors may have to wait for payment, as the company stated: “Under Chapter 11, Town Sports is not allowed to pay any pre-petition obligations, except those that are specifically authorized by the court. The company expects that any pre-petition claims will be addressed under the plan of reorganization and paid at the end of the case after we emerge, according to the terms of the plan. We regret the impact this may have on some of our vendors.”
Town Sports is the third large health club chain to file for bankruptcy this year. Gold’s Gym International filed a voluntary Chapter 11 restructuring on May 4 and has since emerged from that with new ownership.
24 Hour Fitness filed for a voluntary Chapter 11 on June 15 and is working its way through its restructuring.