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The owner of the New York Sports Club chain is weighing a Chapter 11 bankruptcy filing, as 95 percent of the company's gyms across the country remain closed to curb the spread of coronavirus, according to a report by Bloomberg Law.
Town Sports International Holdings Inc. has reportedly been in talks with advisers and lenders to get ahead of its nearly $200 million loan maturity in November.
The company is reportedly seeking advice from lawyers at Olshan Frome Wolosky LLP and interviewing investment bankers to serve as the company’s financial adviser. A group of lenders is working with law firm Gibson Dunn & Crutcher LLP and restructuring specialists at FTI Consulting Inc., according to Bloomberg.
Sources close to the situation told Bloomberg the bankruptcy plan could change depending on how long the shutdown lasts and how much revenue is lost.
A representative for Town Sports International didn’t immediately return FOX Business' request for comment on the report or how it would impact its clubs and members.
In Town Sports' annual report, the company warned last month there’s "substantial doubt about its survival".
"Our ability to continue as a going concern will depend upon our ability to refinance our debt prior to its maturity," the company said in the filing. "There can be no assurance that we will be able to refinance our debt, or if we are able to refinance our debt, that such financing will be on terms favorable to us."
The company was looking for a financial reprieve through a deal to buy the indoor cycling studio business Flywheel Sports. The chain wanted to use part of the financing from Flywheel’s owners to replace a loan coming due in November, but plans fell apart and the two parties dropped the agreement.
As the coronavirus creates growing uncertainty around when Town Sports' clubs will be able to reopen, the company says it is “likely to experience reduced customer demand, a significant increase in membership terminations and may be unable to recover these members or generate new ones,” according to last month’s filing.
Town Sports borrowed $12.5 million from its revolving credit facility after its clubs were forced to close, and the company reported around $178 million of debt outstanding under its term loan as of year-end, according to its annual report. The company also acknowledged cash wasn’t sufficient to cover its November obligation.
In a fourth-quarter earnings statement, same-store sales reportedly increased 0.9 percent in January and 1.2 percent in February before the coronavirus began to spread, and Town Sports International CEO Patrick Walsh said he is hopeful that gyms will be able to reopen when the dust settles.
"As we weather the strains on our business from the unprecedented worldwide response to the Coronavirus outbreak, we look forward to resuming this trend in the remainder of 2020,” Walsh said.
The financial troubles for Town Sports International come as the company is facing customer lawsuits over continuing to charge members during the coronavirus shutdown and allegedly making it hard for customers to cancel their memberships.
New York Sports Clubs began operations as a cluster of squash clubs in the 1970s before introducing exercise classes and expanding up and down the East Coast. The company operates about 200 fitness studios, with a majority in the New York metro area, and has more than 600,000 members.
In addition to New York, Town Sports International operates Sports Club chains in Boston, Philadelphia and Washington.
|CLUB||TOWN SPORTS INT. HLDGS||1.00||+0.24||+31.58%|
During Tuesday's trading session, Town Sports International's stock, CLUB, tumbled more than 27 percent. Shares of the stock are down 86 percent over the last 90 days.