Fitness First owners mulling CVA

Fitness First's new owners are considering a company voluntary arrangement. Let's hope the gym's workers don't suffer an abrupt face-plant off the back of the job treadmill...

by Dave Waller
Last Updated: 10 Apr 2012
The health club group has been looking decidedly short of breath lately. It breached its banking covenants last month and missed a £18.8m interest payment, and in the last five years its earnings have shrunk from £146m to £115m. While the group is backed by private equity firm BC Partners, more than 75% of its rising debt has been bought by Oaktree and Marathon –­ which means the pair effectively control its future. And that of its 13,000 workers.

So what's the plan to force it back into shape? The two funds have agreed to waive all covenant breaches and give BC Partners until April 24 to put together an emergency plan to cut the flab off the business, which has over 140 clubs in the UK, and some 430 clubs in total including Asia, Australia and Germany. That's 1.2m members relying on Fitness First for their calorie-busting regimens.

The plan also involves a review of all strategic options for the UK estate, including use of a CVA - an alternative to administration, which asks creditors to  accept reduced terms - and sending in ex-Northgate chief exec Chris Stone to shout things like 'come on, you useless sack of ****!' through a megaphone during the restructuring.

No decisions have yet been made on whether a CVA is possible, but if Oaktree and BC Partners do agree to launch it next month, it may allow Fitness First to salvage jobs and healthy parts of the business ­– if its landlords agree to the deal. While unprofitable clubs could well be closed, others would potentially look to switch to monthly rental payments or reduced lease terms. Lenders are also likely to go for a full debt for equity swap, which would write off Fitness First's £623m debt burden.

While that would be bad news for the size of owner BC Partners stake, it's arguably less bad than any of the alternatives, none of which look too jolly at present. BC paid 1.2bn Euros for the business back in the glory days of 2005, so even assuming that the CVA and/or debt/equity swap come off it's looking like an expensive punt from their end of the treadmill.

Unfortunately for firms like Fitness First, today's cash strapped flab-fighters have realised that going for a run is an awful lot cheaper than a gym membership...

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