Lenders to Fitness First have agreed a waiver and forbearance covering the anticipated April 6 covenant breach, as well as the non-payment of interest on March 30, according to sources. The waiver is in place through April 24, providing breathing space for the borrower as work on the company’s restructuring takes place.
AlixPartners is working on the new business plan for the company, and constructive discussions between Oaktree, the company and sponsor BC Partners are ongoing, sources added.
As reported, Oaktree Capital and Marathon have amassed a position of more than two-thirds of the debt, buying up paper from a large number of lenders opting to sell out of the name, sources said. That has left mostly bank lenders holding the residual paper, sources added.
Oaktree is offering new money of £75-100 million, likely on a super-senior basis, to shore up the company’s depleted liquidity reserves. In return Oaktree is understood to be considering a range of restructuring options, potentially including a full equitisation of the debt, according to sources. To take control via a U.K. scheme of arrangement, Oaktree needs more than 75% of the debt, but should pass this threshold by working with the other distressed investors, who have been buying up the debt.
Fitness First was acquired from Cinven by sponsor BC Partners in 2005 for £835 million, which put in equity worth 41%. The debt was shifted to an all-senior structure and repriced in 2007, with total debt worth £622.5 million. Plans to IPO the business last year fell through, and the company has since experienced a sharper-than-expected fall in EBITDA, which has lead to covenant pressure.
In 2010, Fitness First requested and received a covenant headroom waiver. The request was linked to both the planned listing and its Asian expansion plans. At the time, BC Partners presented a three-year plan and covenant reset to lenders, and offered to inject £50 million of new equity to fund the capex requirements for 2011 and 2012.
While principally active in the U.K., with 160 clubs located in London and around the country, the health-club provider also operates in Germany and Australasia. Sources suggest that the business requires an intensive overhaul in order to turn it around. – Sarah Husband