Town Sports Update - New York Sports Clubs
As set forth in this article reporting about the deal cut between the lenders, the Bankruptcy Judge wants to make sure that the assets are properly marketed.
NY Sports Club Owner's Ch. 11 Strategy Draws Court Concern
By Vince Sullivan
Law360 (September 16, 2020, 4:48 PM EDT) -- The parent company of New York Sports Club told a Delaware bankruptcy judge Wednesday that it had reached a deal with warring creditors that would allow for a Chapter 11 sale process to commence, but the court voiced concerns over the proposed timeline in the case.
During a hearing conducted virtually, Town Sports International attorney Nicole L. Greenblatt of Kirkland & Ellis LLP said the case began with discord among groups of senior lenders but that a deal had been reached where they will allow a third party to serve as a stalking horse bidder for the debtor's assets and provide post-petition financing.
U.S. Bankruptcy Judge Christopher S. Sontchi said he was happy the parties had reached agreement but also said the sale process, while not yet filed, would seek to run a 35-day process without a sufficient prepetition marketing effort.
"That's very good news," Judge Sontchi said of the settlement. "We just need to make sure going forward that while I am probably among the more supportive judges in terms of allowing the parties to agree to a path forward and not getting in the way, there are lines that can't be crossed. I am concerned about the timeline but we'll decide that another day and we'll hear what a committee has to say about it."
When it filed for bankruptcy Monday, Town Sports was in the midst of a dispute with its senior lenders over the ability of one group to provide financing and credit bid the debt it holds. By Wednesday's hearing, the issue had been resolved by first-lien lender Kennedy Lewis Investment Management allowing an ad hoc group of fellow lenders to work with third party Tacit Capital to provide a debtor-in-possession loan and to serve as a stalking horse bidder.
Under the terms of the agreement, Tacit will provide a DIP financing package of $20 million in total, with $7 million available on an interim basis by the end of September, with court approval. It will also provide $45 million of capital investment into the company post-sale.
The ad hoc lender group and Tacit will also work together to credit bid up to $85 million of the first-lien debt held by the group, Greenblatt said. Proposed bidding procedures governing the sale are due to be filed by Monday.
The parties agreed to the consensual use of cash collateral until the DIP could receive interim approval from the court.
Kennedy Lewis and the debtor had agreed to an $80 million financing package prior to the bankruptcy filing that included both DIP and exit financing, but the deal required the priming of other lenders, according to Greenblatt. Kennedy Lewis, which owns 45% of the secured debt owed by Town Sports, could not force the priming of the ad hoc group of lenders, which holds 52% of the debt.
The ad hoc group raised concerns about Kennedy Lewis' role as a large equity owner of the debtor's ultimate nondebtor parent company and said it wouldn't agree to the Kennedy Lewis financing package because it believed the bankruptcy case was being run for the benefit of the parent company to the detriment of other creditors.
Town Sports owns and operates 186 fitness clubs, the most notable of which are the 99 clubs operating under the New York Sports Clubs banner. Founded in New York City in 1973, the company also operates the Lucille Roberts and Total Woman Gym and Spa chains and locally branded gyms in Boston, Philadelphia, Washington, D.C., and Palm Beach, Florida.
The business was shut down in March due to the global spread of COVID-19 and has just recently been able to begin a phased reopening of its gyms in some jurisdictions. The shutdown led to an immediate halt to most of its revenue.
Town Sports came to court with $186 million in first-lien secured debt held by Kennedy Lewis and the ad hoc group along with $47 million in unsecured trade debt owed to landlords and vendors.
Town Sports is represented by Robert S. Brady, Sean T. Greecher and Jordan E. Sazant of Young Conaway Stargatt & Taylor LLP and Nicole L. Greenblatt, Derek I. Hunter and Mark McKane of Kirkland & Ellis LLP.
The case is In re: Town Sports International LLC et al., case number 20-12168, in the U.S. Bankruptcy Court for the District of Delaware.
During a hearing conducted virtually, Town Sports International attorney Nicole L. Greenblatt of Kirkland & Ellis LLP said the case began with discord among groups of senior lenders but that a deal had been reached where they will allow a third party to serve as a stalking horse bidder for the debtor's assets and provide post-petition financing.
U.S. Bankruptcy Judge Christopher S. Sontchi said he was happy the parties had reached agreement but also said the sale process, while not yet filed, would seek to run a 35-day process without a sufficient prepetition marketing effort.
"That's very good news," Judge Sontchi said of the settlement. "We just need to make sure going forward that while I am probably among the more supportive judges in terms of allowing the parties to agree to a path forward and not getting in the way, there are lines that can't be crossed. I am concerned about the timeline but we'll decide that another day and we'll hear what a committee has to say about it."
When it filed for bankruptcy Monday, Town Sports was in the midst of a dispute with its senior lenders over the ability of one group to provide financing and credit bid the debt it holds. By Wednesday's hearing, the issue had been resolved by first-lien lender Kennedy Lewis Investment Management allowing an ad hoc group of fellow lenders to work with third party Tacit Capital to provide a debtor-in-possession loan and to serve as a stalking horse bidder.
Under the terms of the agreement, Tacit will provide a DIP financing package of $20 million in total, with $7 million available on an interim basis by the end of September, with court approval. It will also provide $45 million of capital investment into the company post-sale.
The ad hoc lender group and Tacit will also work together to credit bid up to $85 million of the first-lien debt held by the group, Greenblatt said. Proposed bidding procedures governing the sale are due to be filed by Monday.
The parties agreed to the consensual use of cash collateral until the DIP could receive interim approval from the court.
Kennedy Lewis and the debtor had agreed to an $80 million financing package prior to the bankruptcy filing that included both DIP and exit financing, but the deal required the priming of other lenders, according to Greenblatt. Kennedy Lewis, which owns 45% of the secured debt owed by Town Sports, could not force the priming of the ad hoc group of lenders, which holds 52% of the debt.
The ad hoc group raised concerns about Kennedy Lewis' role as a large equity owner of the debtor's ultimate nondebtor parent company and said it wouldn't agree to the Kennedy Lewis financing package because it believed the bankruptcy case was being run for the benefit of the parent company to the detriment of other creditors.
Town Sports owns and operates 186 fitness clubs, the most notable of which are the 99 clubs operating under the New York Sports Clubs banner. Founded in New York City in 1973, the company also operates the Lucille Roberts and Total Woman Gym and Spa chains and locally branded gyms in Boston, Philadelphia, Washington, D.C., and Palm Beach, Florida.
The business was shut down in March due to the global spread of COVID-19 and has just recently been able to begin a phased reopening of its gyms in some jurisdictions. The shutdown led to an immediate halt to most of its revenue.
Town Sports came to court with $186 million in first-lien secured debt held by Kennedy Lewis and the ad hoc group along with $47 million in unsecured trade debt owed to landlords and vendors.
Town Sports is represented by Robert S. Brady, Sean T. Greecher and Jordan E. Sazant of Young Conaway Stargatt & Taylor LLP and Nicole L. Greenblatt, Derek I. Hunter and Mark McKane of Kirkland & Ellis LLP.
The case is In re: Town Sports International LLC et al., case number 20-12168, in the U.S. Bankruptcy Court for the District of Delaware.
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