December 22, 2020 – The Court overseeing the 24 Hour Fitness Worldwide cases issued an order confirming the Debtors' Revised First Amended Plan of Reorganization [Docket No. 1508].

On June 15, 2020, 24 Hour Fitness Worldwide, Inc. and 10 affiliated Debtors (“24 Hour Fitness” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11558. At filing, the Debtors, one of the nation’s leading operators of health and fitness clubs, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1.43bn of funded debt).

On December 18, 2020, the Debtors filed their First Amended Plan of Reorganization [Docket No. 1478]. On December 21, 2020, the Debtors filed a Revised First Amended Plan and related blackline showing immaterial changes to the version filed on December 18, 2020 [Docket Nos. 1487 and 1488, respectively].

In a December 21, 2020 statement on its website announcing the confirmation, the Debtors stated, "On December 21, 2020, the U.S. Bankruptcy Court for the District of Delaware confirmed the plan of reorganization for 24 Hour Fitness. This is one of the critical final steps towards emerging from our financial restructuring by the end of 2020 after a voluntary chapter 11 filing in June…We are focused entirely on transforming our business and the club experience for the better, including upgrading equipment and expanding and improving our fitness offerings to best serve our team members, club members and guests as we continue our transformational journey."

Plan Overview

The Debtors' Memorandum of Law in Support of Plan Confirmation [Docket No. 1459] states, “The Debtors commenced these chapter 11 cases in June 2020 amidst a global pandemic that had quite literally grounded their operations to a halt. For reference, these operations include hundreds of club locations, thousands of vendors and business partners, tens of thousands of employees, millions of club members and approximately $1.4 billion of prepetition debt. In response to the unprecedented challenges arising from COVID-19, the Debtors rigorously scrutinized nearly every aspect of their business and responded accordingly to preserve value and, most fundamentally, their ability to operate, grow and thrive as a going concern for the benefit of their members and their thousands of employees. These efforts have succeeded, and the Debtors now present their Plan for confirmation by the Bankruptcy Court.

The Plan itself represents months of tireless, good-faith efforts by the Debtors, the Creditors’ Committee, the Ad Hoc Group, the Debtors’ key business partners and their respective advisors to achieve the objectives of chapter 11 — facilitating a business’ reorganization as a going concern, while also maximizing value for stakeholders. These objectives are achieved through the Plan now before the Bankruptcy Court.”

On the topic of outstanding objections, the Memorandum notes: “To date, the Debtors have received approximately seventeen (17) objections (collectively, the ‘Objections’) to Plan confirmation. The Debtors have worked hard to narrow the issues and, where possible, resolve concerns raised by the objecting parties. At present, the Debtors expect to resolve sixteen (16) Objections prior to Monday’s confirmation hearing…The Debtors also received a number of objections to the Debtors’ assumption or assumption and assignment of executory contracts and unexpired leases (collectively, the ‘Contract Objections’). The Debtors are continuing to work to resolve the Contract Objections….To the extent not otherwise resolved prior to the Confirmation Hearing, such Contract Objections shall be adjourned and set for a further hearing in accordance with Article V.D of the Plan.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

NB: Recoveries are based on a total enterprise value of approximately $538.0mn for the Debtors, together with their non-debtor affiliates. 

• Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Prepetition Credit Facility Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $690,784,861.41 and the estimated recovery is 2.5%. Each Holder will receive, pursuant to the Restructuring Transactions, its Pro Rata share of 5.0% of the New Common Equity Interests, subject to dilution by the DIP Backstop Equity Issuance, the Warrants, the Management Incentive Plan and the conversion, if any, of New Preferred Equity Interests into New Common Equity Interests.
• Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $900,000,000 and the estimated recovery is 0.1% – 1.0%. Each Holder of a General Unsecured Claim will receive, without regard to the particular Debtor against which such Claim is Allowed:

1. with respect to each General Unsecured Claim that (i) is Allowed in an amount less than or equal to $250,000 or (ii) is held by an Ineligible GUC Holder and is Allowed in amount greater than $250,000 but less than or equal to $400,000, Cash in an amount equal to 1% of the amount of such General Unsecured Claim, to be funded from the General Unsecured Claim Recovery Cash Pool (the “GUC Cash Recovery”); and
2. with respect to each General Unsecured Claim that (i) is held by an Eligible GUC Holder and is Allowed in an amount greater than $250,000 but less than or equal to $400,000 or (ii) is Allowed in an amount greater than $400,000, its Pro Rata share of the Warrants; provided, that, if the number of Holders receiving Warrants will exceed 1,500, then the Debtors reserve the right to provide the GUC Cash Recovery (in lieu of its Pro Rata share of Warrants) to Eligible GUC Holders that hold General Unsecured Claims that are Allowed in an amount greater than $250,000 but less than or equal to $400,000 on account of such Claims, beginning with the Holder of the General Unsecured Claim Allowed in the smallest aggregate amount, such that the number of Holders that will receive Warrants does not exceed 1,500.

^{FN: The value of the Warrants has been estimated using a Black-Scholes valuation model to be $0.3 million to $2.2 million, with a midpoint of $1.0 million.} 

• Class 5 (“Membership Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $13,000,000 and the estimated recovery is 5.0% – 6.0%. Each holder will receive, without regard to the particular Debtor against which such Claim is Allowed:

1. with respect to each Membership Agreement Claim that is Allowed in amount less than or equal to $250.00, a Gift Card in the amount of $25.00; and
2. with respect to each Membership Agreement Claim that is Allowed in amount greater than $250.00, a Gift Card in the amount of $50.00.

• Class 6 (“Intercompany Claims”) is impaired or unimpaired, deemed to reject or deemed to accept and not entitled to vote on the Plan.
• Class 7 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 8 (“Intercompany Interests”) is impaired or unimpaired, deemed to reject, or deemed to accept and not entitled to vote on the Plan.
• Class 9 (“Parent Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

Voting Results

On December 17, 2020, the Debtors’ claims agent notified the Court of the Plan voting results [Docket No. 1462], which were as follows.

• Class 3 (“Prepetition Credit Facility Claims”): 93 claim holders, representing $300,568,716.54 (100%) in amount and 100% in number, voted in favor of the Plan.
• Class 4 (“General Unsecured Claims”): 74 claim holders, representing $465,392,527.90 (97.18%) in amount and 81.32% in number, voted in favor of the Plan. 17 claims holders, representing $13,483,870.36 (2.82%) in amount and 18.68% in number, rejected the Plan.
• Class 5 (“Membership Agreement Claims”): 3,534 claim holders, representing $2,740,819.38 (67.84%) in amount and 77.72% in number, voted in favor of the Plan. 1,013 claims holders, representing $1,299,403.40 (32.16%) in amount and 22.28% in number, rejected the Plan.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Hugo Declaration”), Daniel Hugo, the Debtors’ Chief Restructuring Officer, detailed the events leading to the Debtors’ Chapter 11 filing. The [name] Declaration provides: “But for the COVID-19 pandemic and its detrimental effects on their business, the Debtors would not be seeking the Court’s protection today. As described more fully below, the Debtors were required to close all of their fitness club locations nationwide on March 16, 2020, in accordance with governmental regulations and recommendations, and the vast majority of the Debtors’ fitness clubs remain closed today. Put simply, the COVID-19 pandemic upended the Debtors’ operating model, leaving the Debtors without a source of revenue to fund their operations. With the protection of this Court and the tools that chapter 11 provides, however, the Debtors are confident that they not only can endure the crisis that COVID-19 has presented, but also can transform and modernize their business model in a way that leads to long-term success and relevancy for the 24 Hour Fitness brand and enhances the fitness experience of their millions of loyal members.”

Lease Rationalization 

The Hugo Declaration provides: "The Debtors lease all of their club locations from approximately 300 different landlords. Following the closure of their fitness clubs as a result of the COVID-19 pandemic, the Debtors began to evaluate their lease portfolio to, among other things, quantify and realize the potential for lease savings. The Debtors, together with Hilco, began communicating with landlords in an effort to improve lease terms by agreement and address certain burdensome leases. Relatedly, the Debtors are requesting authority to reject approximately 135 club leases…In addition, the Debtors also have filed the Lease Rejection Procedures Motion…seeking authority to implement procedures to reject additional unexpired leases if the Debtors are unable to negotiate sufficient rent concessions to position those clubs for sustained future profitability."

DIP Financing

The Debtors arranged a $250.0mn new money debtor-in-possession (“DIP”) facility to be provided by an ad hoc group of prepetition credit facility lenders and noteholders (the “Ad Hoc Group”). According to the Debtors, the Ad Hoc Group holds approximately 63.3% of the aggregate principal amount outstanding under the Debtors’ Prepetition Credit Facility and approximately 73.9% of the face amount of their $500.0mn Senior Unsecured Notes due 2022.

The Disclosure Statement attached the following documents [Docket No. 1233]:

• Exhibit A: Plan
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Debtors’ Organizational Structure
• Exhibit D: Financial Projections
• Exhibit E: Liquidation Analysis

The Revised Amended Plan [Docket No. 1478] attached the following:

• Exhibit A: Restructuring Support Agreement
• Exhibit B: Purchase Transaction

On December 18, 2020, the Debtors filed a Plan Supplement [Docket No. 1484], which attached the following documents:

• Exhibit A: Directors of Reorganized Debtors
• Exhibit B: Amended Schedule of Assumed Executory Contracts and Unexpired Leases
• Exhibit C: Amended Schedule of Assumed and Assigned Executory Contracts and Unexpired Leases
• Exhibit D: Amended Schedule of Rejected Executory Contracts and Unexpired Leases

Principal Prepetition Shareholders

• AEA Investors: 42.7%
• Fitness Capital Partners LP: 31.2% ands
• 2411967 Ontario Limited: 22.8%

Prepetition Indebtedness

Liquidation Analysis (low and high case, see Exhibit E of Disclosure Statement [Docket No. 1233] for notes and further breakdown by Debtor)

About the Debtors

24 Hour Fitness is one of the nation’s leading operators of health and fitness clubs. The Debtors operate out of their two headquarter locations in San Ramon, California, and Carlsbad, California. As of March 31, 2020, the Debtors served approximately 3.4million members in 445 locations across the United States, all of which are leased.

Prior to the March 2020 closure as a result of the COVID-19 pandemic, the Debtors operated in fourteen states and the District of Columbia, with 445 clubs serving approximately 3.4 million members.

Before implementing a reduction in force and a furlough program following the closure of the Debtors’ fitness clubs in connection with the COVID-19 pandemic, the Debtors employed approximately 19,200 individuals. Due to the closure of their clubs in March 2020, the Debtors furloughed approximately 17,800 individuals and reduced their workforce by approximately 700 individuals. After evaluating their go-forward club footprint and implementing certain strategic initiatives, the Debtors further reduced their workforce by approximately 8,300 individuals prior to commencing these chapter 11 cases. As of the Petition Date, the Debtors employ approximately 10,200 individuals, including approximately 8,100 individuals who are employed on a part-time basis.

Corporate Structure Chart

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