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Creditors clear Fitness First CVA restructuring

by Laura Board in London | Published June 20, 2012 at 11:12 AM

Creditors to Fitness First Group Ltd. Wednesday, June 20, approved a solvent restructuring that paves the way for Oaktree Capital Management LP and Marathon Asset Management LP to complete a debt-for-equity swap with BC Partners.

The swap, agreed in May, was conditional on a so-called company voluntary arrangement proceeding, as without it Fitness First would have struggled to shrink its property estate and agree on more favorable rental terms with landlords.

Following creditors' approval of the CVA, Fitness First will now shed 67 of its gym leases over the next six months and pay 55% of the existing rent while it seeks buyers. Its remaining estate will comprise 79 fitness clubs, of which Fitness First will keep on 57 at current rents, though pay monthly instead of quarterly for three years. Landlords agreed to accept 65% of current rent on another five gyms for three years, before the properties revert to market-based rents, while 17 gyms held within other Fitness First affiliates are unaffected by the CVA.

"Today's vote in favour of the CVA proposal not only addresses Fitness First's operational issues around its property portfolio but also enables the wider financial restructuring and injection of fresh capital to take place, which were dependent on the CVA's approval," said KPMG's Richard Fleming, U.K. head of restructuring, in a statement. "We needed over 75% all creditors to approve but, as with all CVAs, we also needed over 50% of unconnected creditors to approve. We are pleased that the majority of landlords, who were the largest unconnected group of unsecured creditors, voted in favour of the CVA."

KPMG noted that the CVA will generate a return of 25 pence to 35 pence on the £1 for the landlords, versus less than 1 pence on the £1 had the business filed for bankruptcy protection.

In their May 18 agreement, Oaktree Capital and Marathon Asset Management agreed to exchange an estimated £565 million ($889.5 million) of debt for an undisclosed majority equity stake in Fitness First.

The debt investors also agreed to provide an additional £100 million in funding.

Completion of the debt-for-equity swap is expected by the end of September.

Former InterContinental Hotels Group plc CEO Andy Cosslett will head the company under its new owners, having been appointed CEO in May.

"The strong support for the CVA by our landlords is a critical step in the restructuring of Fitness First," said Cosslett in a statement. "We will have a well financed balance sheet and a profitable portfolio of clubs worldwide. This gives us a strong platform on which to build. We are now drawing up plans to increase investment in our existing clubs, increase the number of markets in which we operate and increase our levels of service and innovation for the benefit of our million plus members worldwide."

BC Partners brought in Rothschild to examine its options for selling all or part of Fitness First last fall following its withdrawal from a planned initial public offering of the company in Singapore because of market volatility.

The private equity firm bought the Poole, England-based business from U.K. rival Cinven Ltd. in 2005 in an £835 million transaction.

A BC Partners spokeswoman declined to comment. The firm will keep a small, undisclosed stake in the business following the debt-for-equity swap.

KPMG restructuring partner Brian Green supervised the CVA for Fitness First.

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Creditors clear Fitness First CVA restructuring

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