Court Approves Bally’s Plan

CHICAGO – A bankruptcy court ruled that Bally Total Fitness has met all the requirements to confirm its Chapter 11 plan of reorganization, the Chicago-based company announced.

The ruling came today at a hearing in New York by the U.S. Bankruptcy Court for the Southern District of New York. With this ruling, according to Bally, the reorganization plan will become effective, and Bally expects to emerge from Chapter 11 as a private company by the end of this month.

According to the prepackaged plan, shareholders led by Harbinger Capital Partners, a New York-based private equity firm, would invest approximately $233.6 million in exchange for 100 percent of the common equity interest of reorganized Bally. That would make Harbinger Capital Partners the new owner of Bally Total Fitness.

“The court’s confirmation of our plan paves the way for our emergence from Chapter 11 and we look forward to a rejuvenated Bally Total Fitness under Harbinger’s leadership,” says Don Kornstein, Bally’s interim chairman and chief restructuring officer.

One of the reasons for Bally’s apparent quick exit from bankruptcy was its prepackaged plan, in which Bally obtained approval in advance from bondholders before going to bankruptcy court. Last month, the court ruled that Bally could alter its Chapter 11 plan without re-soliciting approval from all creditors, who still hold some of Bally’s debt but do not have any of the stock now held by Harbinger. (As of Dec. 31, 2006, Bally listed $396.8 million of assets and $761.3 million of debt.) The court has also overruled objections to the reorganization plan from Bally landlords.

Also in the prepackaged plan, Bally’s senior noteholders will receive new senior second lien notes that pay interest at 13 percent as well as a consent fee equal to 2 percent of the face value of the notes they hold. Subordinated noteholders will receive an immediate cash payment of $123.5 million, with the remaining balance payable through an issue of about $200 million in new subordinated notes. The annual interest rate payable under the new subordinated notes will be 15 5/8 percent as the payment-in-kind interest rate and 14 percent as the cash pay interest rate.

As for existing Bally shareholders and holders of certain equity-related claims, they will receive a distribution of $16.5 million as soon as Bally can determine the maximum amount of the equity-related claims. That determination cannot be made until after Oct. 31, 2007 and may require court approval, according to the company.

The original reorganization plan was sponsored by noteholders Tennenbaum Capital Partners LLC, Goldman Sachs Group Inc. and Anschutz Investment Co., who collectively hold more than 80 percent of the subordinated notes.

Harbinger Capital Partners, which this year bought more than 400,000 shares of stock from Bally’s second-largest shareholder, Liberation Investment Group, has traditionally invested in troubled companies. Some say that Harbinger’s intention of investing in Bally is to re-sell the company in a few years. As of June 1, 2007, Harbinger Capital Partners was managing in excess of $8.7 billion through its strategies.

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