November 9, 2020 – The Debtors filed a motion requesting each of a bidding procedures order and a sale order [Docket No. 17]. The bidding procedures order would (i) approve bidding procedures for the sale of substantially all of the Debtors' assets (the “Sale”) and (ii) authorize the Debtors to enter into a stalking horse asset purchase agreement (the “APA”) with YF FC Acquisition, LLC (the “Stalking Horse Bidder”). The sale order would authorize the Sale. The APA is attached to the motion as Exhibit C (see page 42 of Docket No. 17.1). The APA is to signed on behalf of the purchasers by of Birch Grove Capital as its sole member.

The motion notes, “The goal of these chapter 11 cases is to consummate a sale of the Debtors’ assets that will maximize recoveries for the Debtors’ estates and maintain a viable business. Absent the agreement of the Debtors’ prepetition secured lenders to serve as a stalking horse bidder and to provide debtor-in-possession financing and access to cash collateral to fund the sale process and working capital needs pending a sale, the Debtors would have been forced to cease operations, close their locations, and lay off their remaining employees. Accordingly, in connection with their post-petition financing, the Debtors have agreed to certain reasonable milestones, which are an important part of the sale process.

As detailed in the First Day Declaration and the Sale Declaration, in August of 2019, the Debtors, in consultation with their legal and financial advisors, began exploring transactions through which to sell all or substantial parts of their business. To that end, the Debtors initially engaged Citigroup Global Markets Inc. (‘Citi’) to conduct an extensive and comprehensive marketing process. However, due to the suspension of operations and closure of clubs resulting from COVID-19 in March of 2020, the Debtors and Citi did not complete the marketing and sale process. A single strategic investor submitted a non-binding indication of interest, but discussions did not result in an offer for the business or distinct assets of the business.

Prepetition Marketing

In June of 2020, the Debtors retained FocalPoint Securities, LLC as its investment banker (‘FocalPoint’) to re-start the marketing process. As part of this renewed process, over the past five (5) months since its engagement, FocalPoint contacted over 100 potential strategic and financial buyers. Of those contacted, 51 parties executed confidentiality agreements and were given operational, organizational and financial information on the Debtor. In addition, follow-up diligence calls were held with 26 parties. Conversely, 51 formally declined to engage in discussions. The Debtors ultimately received non-binding indications of interest from five parties interested in pursuing a transaction (collectively, the ‘Indications’). While the Debtors were unable to reach an agreement with any of these parties on an out-of-court basis, the Debtors believe that this process which began over a year ago in August of 2019, was of sufficient length and breadth to reach the full universe of parties likely to be interested and reflected a reasonable attempt to reach an out-of-court transaction with a strategic or financial party given the Debtors’ liquidity and time constraints.

None of the Indications included a purchase price that was sufficient to satisfy in full the obligations owed to the Prepetition Lenders (as defined in the First Day Declaration). Nor did any of the Indications provide for a going-concern sale of the Debtors’ assets sufficient to preserve value, save jobs, and maximize recoveries for stakeholders. The Debtors were not able to obtain the Prepetition Lenders’ agreement to designate as stalking horse bidder any of the parties submitting the Indications.

Accordingly, the Debtors negotiated a sale transaction with the Prepetition Lenders under which the Prepetition Lenders would (through a special purpose entity) act as the Stalking Horse Bidder. In connection therewith, the Prepetition Lenders have agreed to provide a post-petition financing facility (the ‘DIP Facility’) and access to cash collateral to fund the auction process, and the Debtors and the Prepetition Lenders executed the Stalking Horse Purchase Agreement for the purchase of the Debtors’ going-concern business. As a result, the Debtors are able to preserve the value of their assets, maintain their business operations for the benefit of vendors, taxing authorities and service providers, and ensure that employees will be able to keep their jobs on substantially the same terms and conditions under which they are currently employed.

A Sale is the only option that will enable the Debtors to preserve the value of their assets, maintain their business operations for the benefit of vendors and service providers, ensure that employees will be able to keep their jobs on substantially the same terms and conditions under which they are currently employed, and maximize the recoveries for the Debtors’ estates. Accordingly, the Motion should be granted, the Stalking Horse Bidder and Stalking Horse Agreement should be approved, the Debtors should be authorized to implement the fair and reasonable Bidding Procedures to obtain the highest and best offer for the Debtors’ assets, and any resulting Sale in accordance with the Bidding Procedures should be approved.”

Key Terms of the Stalking Horse Purchase Agreement:

• Sellers: The Debtors
• Buyer: YF FC Acquisition, LLC
• Purchase Price: The aggregate consideration for the sale and transfer of the Acquired Assets to the Buyer (the “Purchase Price”) shall be not less than $75.0mn, which shall be payable in the form of: (a) a credit bid or assumption by the Buyer or its assignee of up to the full amount of the DIP Obligations; plus (b) a credit bid or assumption by the Buyer or its assignee of the remaining balance in an amount up to the full amount of the Prepetition Obligations; plus (c) the assumption of Assumed Liabilities (including the Cure Amounts).
• Bidder Protections: None

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