YouFit Health Clubs, LLC – Seeks $31.8mn of DIP Financing Including $10.6mn of New Money Term Loan ($3.6mn on Interim Basis) and a $21.2mn Roll-up

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November 9, 2020 – The Debtors requested Court authority to (i) access $31.8mn of debtor-in-possession (“DIP”) financing and (ii) limited use of cash collateral [Docket No. 10]. The DIP financing, which is to be provided by certain prepetition lenders who will also be serving as a credit bidding stalking horse, consists of (a) $10.6mn of new money term loans, with $3.5mn on interim basis, and (b) a roll-up of $21.2mn of prepetition debt (to occur upon issuance of a final DIP order).

The motion notes, “Following lower-than-anticipated revenues in the fourth quarter of 2019, the suspension of the Debtors’ operations due to COVID-19 has, as with many businesses, further strained the Debtors’ liquidity position. With uncertainty as to the Debtors’ ability to keep their clubs open due to COVID-19, including whether existing members will maintain their memberships and new memberships will be sold, the Debtors commenced these chapter 11 cases to shed burdensome obligations, close underperforming locations, and consummate a going-concern sale of their other locations.

On November 9, 2020, the Debtors entered into that certain asset purchase agreement (‘APA’) with YF FC Acquisition, LLC, an acquisition vehicle created by the DIP Lenders (in such capacity, the ‘Stalking Horse Bidder’), for the sale of substantially all of their assets. The APA, among other things, provides for a purchase price of not less than $75,000,000, plus the assumption of certain liabilities. On the Petition Date, the Debtors filed a motion (the ‘Sale Motion’) for entry of orders, among other things, (i) approving certain bidding and auction procedures (the ‘Bidding Procedures’) and (ii) authorizing the sale of substantially all of the Debtors’ assets to YF FC Acquisition, LLC or another successful bidder (the ‘Proposed Sale’). The Debtors anticipate that the Proposed Sale will preserve the Debtors’ business as a going-concern and will result in the continued employment for many of the Debtors’ employees.

To be able to continue operating their business in the ordinary course and preserve the going-concern value of their assets to complete the proposed sale, it is imperative that the Debtors have access to the DIP Credit Facilities and use of Cash Collateral during these chapter 11 cases. Without access to the DIP Credit Facilities and use of Cash Collateral, the Debtors will not have sufficient liquidity, whether in the form of unencumbered cash-on-hand or generated from their operations, to pay their necessary operating expenses or consummate the contemplated sale. As such, the Debtors have an immediate need for the DIP Credit Facilities. The Debtors are commencing the chapter 11 cases with limited cash on hand, and without access to the DIP Credit Facilities on an interim basis, the Debtors will suffer immediate and irreparable harm.

Given the Debtors’ desire to avoid the cost and uncertainty of a post-petition DIP facility that would attempt to non-consensually prime the Prepetition Secured Parties, the Debtors concluded that under the circumstances acceptable third-party financing was not reasonably obtainable. Nevertheless, the Debtors, with the help of their professionals, approached nine parties—with a focus on the existing capital structure. No third-party has come forward with any proposal for a facility on a junior or unsecured basis to meet the Debtors’ liquidity needs. Although there was some interest by third parties in funding into the capital structure, no interested party was willing to provide (i) senior secured financing absent the explicit consent to prime existing lenders’ liens, (ii) secured financing junior to the existing liens, or (iii) financing on an unsecured basis. The only viable source of secured credit available to the Debtors, other than the use of cash collateral, is the DIP Credit Facilities. Further, the Debtors do not believe they can adequately protect, preserve, and maximize the value of their estates without access to post-petition financing. As a result, the DIP Credit Facilities and the Proposed Sale provide the Debtors with a path to best preserve the value of the Debtors’ business and operation.

As set forth in the First Day Declaration, the Debtors and their estates would suffer immediate and irreparable harm if the Debtors were denied the financing needed to sustain ongoing business operations during the critical first weeks of these chapter 11 cases. The DIP Credit Facilities should provide the Debtors with liquidity to fund the Debtors’ business operations and administrative expenses to run a robust marketing process, auction, and sale of the Debtors’ assets; and allow the Debtors to operate uninterrupted in these chapter 11 cases. If approved, the Debtors will use the proceeds of the DIP Credit Facilities to, among other things, honor employee wages and benefits, taxes and fees, procure goods and services, and fund general and corporate operating needs and the administration of these chapter 11 cases.”

Key Terms of the DIP Facility:

  • Borrowers: Each of the Debtors.
  • DIP Lenders: Prepetition Lenders who participate in the DIP Credit Facilities as lenders, including the Prepetition Lender Representative, and their respective permitted assignees and successors.
  • DIP Facility / Borrowing Limits: A facility in the aggregate maximum principal amount of up to $31,795,518.00, consisting of: (i) a senior secured, superpriority multi-draw term loan facility, in the aggregate amount not to exceed $10,598,506.00 (the “DIP Term Loan Facility”), (ii) upon the entry of the Final DIP Order, a roll-up facility, in the aggregate amount equal to $21,197,012.00 (the “DIP Roll-Up Facility”), and (iii) the Commitment Fee, which shall be equal to 4.00% of the DIP Term Loan Commitments and which shall be approved by, and fully earned, and payable in-kind by adding such amount to the principal amount of the Term Loan Facility, upon entry of the Interim DIP Order, all on the terms and conditions set forth in the Interim DIP Order, any Final DIP Order and the DIP Credit Agreement. Up to $3.5mn on an interim basis, with such Interim DIP Commitment to be advanced solely from the proceeds of the DIP Term Loan Facility of the DIP Credit Facilities.
  • Interest Rates: 13.50% per annum, computed on the basis of a 365-day or 366- day year, as the case may be, and for the actual number of days elapsed in the period during which it accrues.
  • Maturity Date: The earlier to occur of (i) the closing date of the Bankruptcy Sale and (ii) fifty (50) days after the Petition Date, as such date may be extended pursuant to Section 2.3 of the DIP Credit Agreement.

Prepetition Indebtedness

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.

Budget [See Exhibit B of proposed order at Docket No. 10]

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