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November 9, 2020 – YouFit Health Clubs, LLC and 118 affiliated Debtors (“YouFit” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12841. The Debtors, a Florida-headquarted chain of fitness clubs with over 100 locations in 14 states, are represented by Dennis A. Meloro of Greenberg Traurig LLP. Further board-authorized engagements include (i) FocalPoint Securities, LLC as investment banker, (ii) Hilco Real Estate, LLC as real estate advisors and (iii) Donlin Recano as claims agent.
The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Bank of America, NA ($10.0mn PPP loan claim), (ii) Service Properties Trust ($499k rent claim) and (iii) Arcadia Management Group Inc. ($343k rent claim). 28 of the Debtors' top 30 unsecured claims relate to rent, with each claim in excess of $128k.
The Debtors are the latest in a string of fitness chains to succumb to COVID-19 and file for bankruptcy protection, joining Town Sports International (the parent company of New York Sports Clubs and Boston Sports Clubs), 24 Hour Fitness and Gold's Gym (each of which we cover separately).
As of the the Petition date, the Debtors had approximately 340,000 current members. For the twelve-month period ending on December 31, 2019, the Debtors had total revenues of approximately $135.0mn.
Events Leading to the Chapter 11 Filings
The Debtors Declaration in support of fits day motions provides: "After entering into the Prepetition Credit Agreement in the first quarter of 2019, on June 5, 2019, the Preferred Equity Member [YF-GEF Holdings, LLC, a fund controlled by Perella Weinberg Partners Capital Management LP] issued a redemption notice (the ‘Redemption Notice’) to Holdings and YF Lime demanding the redemption of its interests by December 10, 2019. Based on the Redemption Notice, in October of 2019, Holdings retained Citigroup Global Markets Inc. (‘Citi’) as its investment banker to solicit a purchaser for YouFit, and the Preferred Equity Member agreed to extend the redemption deadline pursuant to a tolling agreement.
Citi was still in the process of finalizing a confidential information memorandum on YouFit and had begun reaching out to strategic and financial investors regarding a potential transaction when COVID-19 began spreading in the United States. Due to the suspension of operations and closure of the Clubs, the Debtors and Citi did not have an opportunity to run a robust sale process. It is my understanding that, as part of the limited pre-petition marketing process, a single potential strategic buyer submitted a non-binding indication of interest, but that discussions regarding the indication of interest and the process did not result in an offer for the business or distinct assets of the business. ii. Defaults under the Prepetition Credit Agreement
The Debtors’ business suffered a greater-than-normal seasonal decline in the fourth quarter of 2019, leading to events of default under the Prepetition Credit Agreement for breaching certain of the financial covenants in addition to other non-monetary breaches.
Historically, the Debtors have recorded most of their sales in the first month of a given calendar year. Based on historical sales, the Debtors anticipated returning to covenant compliance in the first quarter of 2020. Unfortunately, these anticipated sales did not materialize as the world began to grapple with the then-emerging COVID-19 pandemic. The potential strategic buyer withdrew its indication of interest citing the uncertainty created by the COVID-19 crisis."
As of the Petition Date, the Debtors have outstanding debt obligations in the aggregate principal amount of approximately $110.0mn, consisting primarily of (a) not less than approximately $87,965,901.34 in secured debt under a first lien senior secured credit facility, (b) approximately $9.5mn owed to landlords, (c) approximately $10.0mn owed with respect to a PPP Loan and (c) approximately $2.0mn owed to vendors and other unsecured creditors.
About the Debtors
According to the Debtors: "At Youfit Health Clubs, we're on a mission to change what going to the gym means. Our health clubs are a place where you can get a great workout in a welcoming environment. Whether it's your first time visiting a gym or you've been going for years, you'll find the support and services you need to make the most of our fitness.
The first Youfit Health Clubs location opened in St. Petersburg, Florida in 2008. Since then, we've expanded with locations throughout the country and we're continuing to grow. Each Youfit Health Clubs location offers easy-to-use workout equipment, awesome amenities, and friendly YouCoaches who are ready to help. Many locations have also expanded to offer YouGX Group Fitness Classes, child care, HIIT areas, and additional amenities."
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