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May 4, 2020 – GGI Holdings, LLC (Gold's Gym) and one affiliated Debtors (“Gold's Gym” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 20-31318. The Debtors, an iconic chain of fitness centers founded in Venice Beach in 1965 and made famous by Arnold Schwarzenegger, are represented by Aaron Kaufman of Dykema Gossett PLLC.
The Debtors are 69.2% owned by TRT Holdings, Inc.("TRT") which acquired Gold's Gym from private equity firm Brockway Moran & Partners in 2004 for a reported $158.0mn. Robert Rowling's Irving, Texas-based TRT also owns, inter alia, Omni Hotels, Tana Exploration (oil & gas exploration) and Waldo's Dollar Mart (Mexico). As noted below, the Debtors' current intention is to effectuate a sale to TRT.
The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $50.0mn and $100.mn; and estimated liabilities between $50.0mn and $100.0mn. Documents filed with the Court list the Debtors’ largest unsecured creditors as having indeterminate lease-based claims.
In a company statement announcing the filing, the Debtors advised that “The global COVID-19 pandemic spurred us to take immediate action, including the difficult but necessary decision to permanently close about 30 company-owned gyms, to maintain the strength and growth of the potential of the brand as well as ensure the continued viability of the company for decades to come. We have been working with our landlords to ensure that the remaining company-owned gyms reopen stronger than ever coming out of this pandemic."
A message on the Debtors website added: "Our focus is and always will be on our members around the world, and we look forward to welcoming them back as soon as it is safe for our members, team members and communities. Gold’s Gym has been the world’s trusted fitness authority for more than 50 years, and we’re absolutely not going anywhere.
On May 4, 2020, GGI Holdings, LLC and its affiliates ('Gold’s Gym') filed voluntary petitions for relief under Chapter 11 in an effort to facilitate the financial restructuring of the company. This pre-negotiated filing will enable us to emerge stronger and ready to grow, and it is our intent to be on the other side of Chapter 11 by August 1, 2020, if not sooner."
Goals of the Chapter 11 Filings
The Zeitziff Declaration provides: "The goal of the bankruptcy is to ensure the strength and continuity of the Debtors’ business so that there is no disruption to members, franchisees or licensees once the Debtors their franchisees are able to reopen their respective gyms around the nation and the world. Before the commencement of these Cases, the Debtors negotiated with TRT Holdings or its affiliate, the majority owner of GGI Holdings, LLC, and its senior secured lenders regarding terms of a consensual plan. While the terms are still being finalized, we expect to file a largely consensual plan within the first week of these Bankruptcy Cases, and that plan will effectuate a sale or similar restructuring transaction to TRT Holdings or its affiliate.
Events Leading to the Chapter 11 Filing
The Debtors' website notes: "2019 was our strongest year of worldwide growth in company history. No single factor has caused more harm to our business than the current COVID-19 global pandemic and the temporary closures required to protect the safety of our members, team members and communities."
In a declaration in support of the Chapter 11 filing (the “Zeitsiff Declaration”), Adam Zeitsiff, the Debtors’ President and Chief Operating Officer, detailed the events leading to Debtors' Chapter 11 filing. The Zeitziff Declaration provides: "While many factors led to the need for bankruptcy relief, no single factor caused more harm to the Debtors’ business than the current COVID-19 pandemic, emergency declarations and corresponding guidelines, shelter-in-place or stay-at-home orders from local,state, federal and, in some cases, international or foreign authorities. In mid-March, in response to the growing COVID-19 pandemic, the Debtors were forced to temporarily close all company-owned gyms, and, on information and belief, all or substantially all of the franchisees around the U.S. followed suit within days or weeks. As of the Petition Date, all company-owned gyms remain closed. As a result, the Debtors have been unable to collect membership dues and have no other revenues being derived from their gym operations. Additionally, because a majority of the Debtors’ franchise locations remain closed during the pandemic, the Debtors are not receiving ordinary franchising fees.
In light of the sudden and widespread closures brought on by the pandemic, the Debtors began contacting their landlords in late March and early April to advise that they were unable to make ordinary rental payments in April and to request rent abatements or concessions during the temporary closures. As of the filing, the Debtors have continued discussions with the majority of their landlords and believe they will be able to cure and assume (with modifications) the majority of the leases for their company-owned gyms.
Unfortunately, the Debtors anticipated that they would not be able to reach agreements with all of their landlords. As discussed below, before the filing of these Cases, the Debtors determined that approximately 32 of their company-owned gyms could not be renegotiated to a level that would allow the gyms to be maintained to the high “Gold’s Gym” standard. For that reason, the Debtors decided to close those gyms and reject those 32 leases as part of this bankruptcy filing. The Debtors have already notified their pre-petition lenders about this decision and believe that it is in the best interest of the bankruptcy estates to abandon any remaining assets in those locations."
- Credit Agreement: The Debtors are party to a $90.0mn credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), Bank of America, N.A. (“BOA”), and Wells Fargo Bank, N.A. (“Wells” and, collectively with JPMorgan and BOA, the “Prepetition Lenders”) with JPMorgan serving as the lead lender, administrative agent (the “Agent”), and sole bookrunner for the Prepetition Lenders. As of the Petition Date, the borrowings totaled approximately $51.3mn under the credit revolver and outstanding letters of credit allowed under the Credit Agreement.
- Landlord Claims: In all, the Debtors believe they owe their landlords approximately $7.0mn in prepetition rental obligations. The Debtors intend to cure or otherwise resolve those obligations as part of these bankruptcy cases. Apart from outstanding rental obligations, the Debtors are also indebted to various landlords for lease rejection and guaranteed rejection damage claims. Contemporaneously with the filing of this Motion, the Debtors will be seeking authority to reject approximately 32 leases where the Debtors have decided not to reopen operations. Those landlords will have the ability to assert rejection damage claims against the Debtors. On information and belief, the Debtors anticipate landlords’ cure claims will be no more than $7.0mn. The Debtors further anticipate that the total allowable claims asserted by landlords in these cases, whether based on rejection damages, indemnification agreements and other liabilities, will range from $30.0–55.0mn.
- Trade Debt: The Debtors have also incurred approximately $10.0mn, approximately $2.3mn of which is owed to critical vendors.
About the Debtors
The Zeitsiff Declaration provides: "Founded in 1965 by Joe Gold in Venice Beach, California, the Debtors presently boast one of the largest networks of company-owned and franchised fitness centers in the world. The business began its franchise operations in the early 1980s and has grown into a global icon with nearly 700 locations serving approximately 3 million people across six continents each day. Today, the Debtors own and operate approximately 95 gyms domestically, and hold franchise agreements for more than 600 gyms domestically and internationally.
Before the temporary closures caused by the COVID-19 pandemic, the Debtors employed over 4,600 employees at the corporate offices and company-owned gyms. As of the Petition Date, the Debtors employ approximately 111 active employees, of whom approximately 107 are full-time salaried and hourly employeesand approximately 4 are part-time employees, and 4,597 furloughed2employees, of whom approximately 1,090 are full-time salaried and hourly employees and approximately 3,507 are part-time employees."
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