Bally Total Fitness again files for Chapter 11
Bally Total Fitness Holding Corp., the operator of 347 gyms in the U.S., filed for bankruptcy little more than a year after emerging from court protection with financing from hedge fund firm Harbinger Capital Partners.
Bally and 42 affiliates sought Chapter 11 protection today in U.S. Bankruptcy Court in New York, reporting more than $1 billion in debt and assets, according to court records. Bally emerged from bankruptcy on Oct. 1, 2007, with $233.6 million in financing from investors led by New York-based Harbinger.
It's the second bankruptcy filing in three days involving a private equity firm-owned company. Hawaiian Telcom Communications Inc., a provider of local and long-distance telephone service, sought court protection Dec. 1 in Wilmington, Delaware. Carlyle Group, a Washington-based private-equity firm, owns Hawaiian Telcom through a subsidiary.
Bally said in a statement today that it plans to reduce debt through court-supervised reorganization or a sale of the business. The gym operator said it's involved in "active and advanced negotiations" with some of its lenders over a possible sale, which would have to be approved by the bankruptcy court.
"The burden of Bally's long-term indebtedness, coupled with the lack of refinancing options in today's constrained credit markets, have limited our ability to restructure using out-of- court vehicles," Michael Sheehan, Bally's chief executive officer, said in the statement.
Bally said it owes $247 million in unsecured debt to U.S. Bancorp and $231 million to HSBC Holdings PLC.
The company said it will use existing cash reserves to fund its operations. If it's able to negotiate a sale with the company's lenders, they would provide additional cash through debtor-in-possession financing, according to the statement.
Bally operates 347 fitness centers under the "Bally Total Fitness" and "Bally Sports Clubs" brands in the U.S. Its operations outside the U.S., including gyms in the Caribbean, Mexico, South Korea and China, aren't affected by the filing, said Larry Larsen, a company spokesman.
In February, Chicago-based Bally settled a U.S. Securities and Exchange Commission lawsuit that accused it of overstating shareholder equity and understating losses. As part of the accord, the company agreed to comply with federal securities laws. The U.S. Department of Justice also ended a separate criminal probe without taking action, Bally said at the time.
Bally's financial statements were affected by more than two dozen accounting improprieties from 1997 to 2003, according to the SEC complaint, filed Feb. 28 in U.S. District Court in Washington. The regulator said Bally overstated its year-end 2001 shareholders' equity by almost $1.8 billion, and understated net losses in 2002 and 2003 by a total of $183.2 million.
Bally last year won dismissal of a shareholder lawsuit accusing executives including former Chief Financial Officer John Dwyer of making misleading statements about finances. The company said in April 2004 that Dwyer had quit and the SEC was investigating its bookkeeping.
In its July 2007 bankruptcy filing, Bally listed assets of $397 million and debt of $761 million.
The case is In re Bally Total Fitness Holding Corp., 08- 14821, U.S. Bankruptcy Court, District of New York (Manhattan).