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November 2, 2020 – In advance of a scheduled November 3rd hearing, the Debtors have filed blacklined versions of their First Amended Plan and Disclosure Statement showing changes to the versions of documents filed on October 20, 2020 [Docket No. 549]. The Debtors do not appear to have filed clean copies of the Plan documents.
The majority of the amendments relate to the creation of a "Non-Released Claims Trust” which has been established to recognize the interests of general unsecured creditors who may ultimately benefit from existing “Attorney General Litigation,” ie "complaints and lawsuits brought by the Attorneys General in Massachusetts, New York, Washington D.C., Pennsylvania, and Rhode Island asserting, among other complaints, certain alleged unlawful membership cancellations and continued collection of membership fees during prepetition COVID-related closures of gym facilities."
[Updated] On November 3rd, the Court hearing the Town Sports International cases issued an order approving (i) the Debtors’ Disclosure Statement (conditionally. (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a December 14th Plan confirmation hearing [Docket No. 561].
Also on November 3rd, the Debtors filed a solicitation version of the Court-approved Disclosure Statement [Docket No. 587].
Overview of the Plan
The First Amended Disclosure Statement [Docket No. 549] notes, “[T]he Debtors’ business was brought to a halt as a direct result of the global COVID-19 pandemic. …As a result of the hiatus in the Debtors’ membership revenues, mandated decreased operational capacity, increased COVID-related cleaning, and changes in consumer behavior (including membership cancellations), the Debtors’ liquidity became severely limited and necessitated the filing of the Chapter 11 Cases.
Prior to the Petition Date, the… Debtors engaged with certain of their prepetition lenders on the potential terms of DIP financing and an overall restructuring transaction. In connection with these conversations, the Debtors had interest from two groups of Prepetition Lenders regarding potential financing proposals. After further negotiations with both parties, and upon review of each of their respective proposals, the Debtors ultimately decided to move forward with the proposal submitted by Tacit Capital (‘Tacit’), in collaboration with the applicable ad hoc group of Prepetition Lenders. Tacit’s proposal consisted of a DIP facility, coupled with a going-concern credit bid of substantially all of the Debtors’ assets. That bid formed the basis for the Debtors’ DIP financing and stalking horse bid.
Generally speaking, the Plan:
- provides the vesting of all Available Cash from the proceeds of Sale Transaction in the Post-Effective Date Debtors, for the purpose of distribution to Holders of Claims;
- provides for the full and final resolution of funded debt obligations;
- designates a Plan Administrator to wind down the Debtors’ affairs, pay and reconcile Claims, and administer the Plan in an efficacious manner;
- contemplates recoveries to Holders of Administrative Claims, Secured Tax Claims, Priority Tax Claims, Other Priority Claims, and Other Secured Claims as is necessary to satisfy section 1129 of the Bankruptcy Code and
- provides for the creation of a Non-Released Claims Trust for the purpose of investigating and, if appropriate, pursuing the Non-Released Claims Trust Causes of Action, solely to the extent of available insurance coverage (pursuant to the terms specified in Article VIII.C.3 of the Plan), for the benefit of the Non-Released Claims Trust Beneficiaries.
The following is a first amended summary of classes, claims, voting rights and expected recoveries showing changes in bold (defined terms are in the Plan and/or Disclosure Statement) also see Liquidation Analysis below:
- Class 1 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is TBD and the estimated recovery is 100%.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 100%.
- Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is TBD and the estimated recovery is 100%.
- Class 4 (“Prepetition Loan Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $167,163,283.42 and the estimated recovery is 47.8%. Each Holder of an Allowed Prepetition Loan Claim shall receive its Pro Rata share of (not to exceed the amount of such Holder’s Prepetition Loan Claim) the Excess Distributable Cash in accordance with the distribution waterfall set forth in Article IV.C of the Plan. For the avoidance of doubt, no Holder of a Prepetition Loan Claim shall receive any Non-Released Claims Trust Interests or otherwise participate in the distributions to the Holders of Class 5 General Unsecured Claims under this Plan, including on account of any deficiency claims. FN: For the avoidance of doubt, the projected recovery for Holders of Class 4 Prepetition Loan Claims reflects the Term Lender Group’s $80 million credit bid.
- Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $109.0mn – $218.0mn and the estimated recovery is 0.5%-1.0%. Each Holder of an Allowed General Unsecured Claim shall receive: its Pro Rata share of the (i) Non-Released Claim Trust Interests; and (ii) a complete waiver and release of any and all Claims, Causes of Action, and other rights against the Holders of Allowed Class 5 Claims based on claims pursuant to chapter 5 of the Bankruptcy Code or under similar or related state or federal statutes and common law including fraudulent transfer laws from the Debtors, the Post-Effective Date Debtors, and their respective Estates, in each case on behalf of themselves and their respective successors, assigns, and representatives, and any and all other entities who may purport to assert any Cause of Action, directly or derivatively, by, through, for, or because of the foregoing entities, subject to and in accordance with Article IX of the Plan.
- Class 6 (“Intercompany Claims”) is unimpaired, deemed to accept or reject, and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
- Class 7 (“Intercompany Interests”) is unimpaired, deemed to accept or reject, and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
- Class 8 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.
- Class 9 (“Interests in TSI”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.
The First Amended Disclosure Statement attached the following exhibits:
- Exhibit A: Chapter 11 Plan
- Exhibit B: Liquidation Analysis (not clear why this is Exhibit C and not B)
Proposed Key Dates:
- Plan Supplement: November 24, 2020
- Voting Deadline: December 7, 2020
- Objection Deadline: December 7, 2020
- Confirmation Hearing date: December 11, 2020
Liquidation Analysis (see Exhibit B of Disclosure Statement [Docket No. 549] for notes)
About the Debtors
According to the Debtors: "Town Sports International Holdings, Inc. (the 'Company” or “TSI.), is a diversified holding company with subsidiaries engaged in a number of business and investment activities. The Company’s largest operating subsidiary, TSI, LLC, has been involved in the fitness industry since 1973 and has grown to become one of the largest owners and operators of fitness clubs in the Northeast region of the United States. TSI’s corporate structure provides flexibility to make investments across a broad spectrum of industries in order to create long-term value for shareholders. Town Sports International is led by it's Chief Executive Officer and Chairman of the Board, Patrick Walsh."
As of December 31, 2019, the Debtors owned and operated 186 fitness clubs and collectively served approximately 605,000 members.
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