A group of lenders in Town Sports’s USD 178m Libor+ 350bps term loan B due November 2020 has organized and engaged law firm Gibson Dunn, said three sources familiar with the situation. The forced closure of fitness centers across the country has come at an inopportune time for the borrower, which needs to refinance the near-term maturity in order to pave the way for a merger with Flywheel.

However, the fitness club operator said in its 20 March 10-K that there is “substantial doubt” it will be able to refinance its debt, and that if a financing is possible it may not be on favorable terms for the company. On 28 February, the Town Sports and Flywheel extended the parties’ right to terminate their merger agreement to 1 May. “Due to the COVID-19 pandemic and other factors, the company is evaluating its options as it relates to this acquisition,” Town Sports said in the 10-K.

Town Sports’s term loan is quoted in the 35/41.719 context, from levels at 49/57 a week ago and 81.125/86.792 in early March, according to Markit.

Town Sports announced in January that it had reached a deal with Flywheel to acquire its studio business for USD 25m, and that Flywheel majority owner Kennedy Lewis would provide up to USD 50m in second lien financing as part of the deal. The closing and second installment of the loan (USD 25m) was conditioned on Town Sports’s “ability to reach acceptable terms with its existing term loan lenders,” according to the deal announcement.

The refinancing and acquisition are now in jeopardy given market volatility, according to media reports.  

As of 31 March, Town Sports’s liquidity included USD 18.8m of cash and a fully drawn USD 15m revolver due August 2020. On an LTM basis, the company is 4.4x levered through USD 183m of total debt and USD 41.5m of adjusted EBITDA. The EBITDA level is down from USD 54.25m in 2018 and USD 51.78m in 2017.

Elsewhere in the space, 24 Hour Fitness is also working with advisors on the back of depleting liquidity and gym closures made in an effort to slow the spread of COVID-19, as reported.

Town Sports did not respond to a request for comment. Messages left with Gibson Dunn were not returned. 

2020 Debtwire