A DELOITTE rescue proposal for struggling gym chain LA Fitness has received creditor backing and is already underway.
Deloitte insolvency practitioners were recruited to create a rescue deal known as a Company Voluntary Arrangement for LA Fitness which would see some landlords receive 40% less in rental payments.
Partners Matt Smith and Neville Kahn (pictured) have been appointed nominees to supervise the Company Voluntary Arrangement (CVA) of the UK gym chain LA Fitness and LA Leisure which has 80 properties including gyms and head office.
Kahn and Smith proposed that out of the 80 properties: 31, including the Doncaster head office, would pay rent monthly rather than quarterly for two years; seven would pay 60% of current rental paymentsfor two years; and the management would seek new operators for 33 gyms with rent reduced to 45% of current rate; with nine gyms not forming part of the CVA proposals.
The CVA is estimated to reduce the company’s debt burden by about £250m. Kahn, explained that the CVA will also allow the business to address “structural issues” that were hampering the group by “revising lease terms at a number of clubs”.
A CVA is a rescue deal that usually runs for two to five years and must be voted for by 75% of creditors, by value of debt, to vote in favour of the proposals. Once approved the CVA is supervised by licensed insolvency practitioners for the lifetime of the proposal.
“In addition to securing votes from over 75% of all creditors, for a CVA to be approved a company also needs the support of over 50% of unconnected creditors, of which landlords are the largest group for LA fitness,” said Kahn. “I am satisfied that the results of the vote represented the best outcome for all stakeholders and will lead to a greater recovery rate for affected landlords.”
New banking facilities have been arranged with funding of £40m, this includes future investment across the portfolio and represents a £90m reduction in the company’s secured debt obligations. Also, following the restructuring, the group will be released from £159m of secured loan notes.
A marketing exercise is currently underway to seek new ownership of the 33 gyms.
At the time of the CVA proposal’s announcement a statement from the British Property Federation (BPF) said: “We would rather have a discussion than something that is just sprung on landlords. The fact that Deloitte were willing to have such discussions is welcome and should result in a better proposal for landlord creditors than if they had not taken place.
“Allowing compromised landlords to participate in any trading upside for example, is something we have long advocated as a basic fairness in such circumstances”.
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Peter Saville, Ryan Grant and Anne O’Keefe of AlixPartners will now become the supervisors of the CVA and monitor the implementation of the proposal