24 Hour Fitness Worldwide Inc. on Dec. 31, 2020, emerged from Chapter 11, the company announced.
The Wilmington, Del., bankruptcy court confirmed the company's reorganization plan on Dec. 21, 2020. The plan eliminated roughly $1.2 billion in funded debt.
As reported, the company filed for Chapter 11 on June 15, 2020, entering into a restructuring support agreement in early October with holders of DIP claims, pre-petition credit agreement claims and senior note claims.
In early November, however, the unsecured creditors' committee in the case threatened a valuation challenge to confirmation of the company's reorganization plan, saying in an objection to the company's proposed disclosure statement that the panel was "prepared to submit compelling evidence ... that the debtors' businesses are far more valuable than the debtors conclude," citing the "strong performance projected by the debtors' business plan and the potential for 24 Hour Fitness to flourish with valuable real estate concessions in a post-COVID-19 environment."
The company agreed to settle the objection by, in effect, providing a recovery of 1% for unsecured creditors via cash for unsecured claims less than $250,000 (and for certain other unsecured claims between $250,000 and $400,000), while providing remaining unsecured creditors with larger claims, including senior noteholders, with five-year warrants for up to 6.5% of the reorganized company's equity, subject to dilution, at a strike price based on a total enterprise value of $1.2 billion. According to the amended disclosure statement, the warrants are valued at $300,000 to $2.2 million, with a midpoint of $1 million.
That recovery replaced the initial plan's proposed distribution of warrants for 8% of the company for all unsecured creditors, a recovery the committee argued would be worthless, post-dilution.
More broadly, under the company plan DIP lenders received 95% of the equity in the reorganized company and up to $200 million of a contemplated exit facility. DIP lenders also participated in a rights offering for preferred equity interests.
The remaining 5% of the company's common equity was distributed to lenders under the company's pre-petition credit agreement. With allowed claims of about $690.8 million and total reorganized enterprise value of $538 million, the company's disclosure statement valued that recovery at 2.5%.
Weil Gotshal & Manges and Ropes & Gray were the company's legal counsel, while Lazard was its financial adviser and FTI Consulting the company's restructuring adviser. PJT Partners acted as financial adviser and O'Melveny & Myers acted as legal counsel to the ad hoc group of debtholders.
