The owner of bankrupt New York Sports Clubs and Lucille Roberts gyms is preparing to sell to lenders that have agreed to supply the financial backing necessary to keep the fitness chains functioning.
In a Wednesday bankruptcy court hearing, Town Sports International Holdings Inc. said it is working out a deal with lenders and private-equity firm Tacit Capital LLC. Tacit Capital would serve as the lead bidder for the assets.
The offer would be made in the form of debt forgiveness of $85 million at maximum, according to a recent report from The Wall Street Journal.
Town Sports chose Tacit Capital over competing lender Kennedy Lewis Investment Management LLC, which holds 45% of the company’s debt. Kennedy Lewis would have kept about 94 of its 190 gyms open, depending on lease negotiations with landlords.
Tacit had argued that picking Kennedy Lewis’s proposal would have created a conflict of interest because it provided Town Sports Chief Executive Patrick Walsh and Kennedy Lewis with equity in the company.
The Tacit-led group agreed to allow Town Sports to use cash collateral to cover operating costs, pending the negotiation of a larger financing package.
Town Sports filed for Chapter 11 bankruptcy on Monday amid reduced cash flow and liquidity because of the coronavirus pandemic.
A lawyer representing Town Sports asserted that the company's executives need to be able to access capital "so they can reopen the gyms with appropriate health and safety improvements, and comply with relevant consumer protection laws and obligations."
U.S. Bankruptcy Judge Christopher Sontchi, in Wilmington, Del., said that he would approve use of the cash collateral.
Under the deal, Town Sports has until next week to file a strategy for marketing and selling its assets and the company said it is aiming to wrap the sale by the end of next month, according to the Journal.
Lenders supporting the Tacit bid include Abry Partners LLC, Apex Credit Partners LLC, CIFC Asset Management LLC, and Ellington Management Group LLC.
After its Monday filing, Town Sports sought to reassure its roughly 600,000 members that it wasn’t going out of business.
As of Monday, the chain had reopened around 95 of its facilities.
The company has requested to give back 22 location leases to its landlords and potentially reject 13 more locations.