CASE PROFILE: In-Shape looks to sell assets in Chapter 11 backed by USD 45m bid, USD 30m DIP after pandemic closes gyms

In-Shape Holdings LLC will look to sell its assets in Chapter 11, finding itself in a liquidity crunch after nearly a year of the coronavirus pandemic has left it with little ongoing revenue from its health clubs.

 

The company has a stalking horse bid for its assets from In-Shape Acquisition 2021 LLC, a vehicle of its prepetition lenders and co-investors including Paul Rothbard, former CEO and son of In-Shape founder Mort Rothbard. The stalking horse has agreed to credit bid USD 45.3m in prepetition debt and debtor-in-possession (DIP) financing, contribute USD 250,000 in cash, and assume all cure costs.

 

The DIP, also from In-Shape Acquisition, provides the company with USD 30.6m, consisting of USD 15.3m in new money and a roll-up of USD 15.3m in prepetition debt. In-Shape is aiming to auction its assets on 11 February and the DIP sets a series of milestones for the case.

 

Judge Laurie Silverstein of the US Bankruptcy Court for the District of Delaware has not yet scheduled a first day hearing to consider the DIP and other operational motions.



 

Debtwire Dockets: In-Shape Holdings

 

The company

 

Prior to the pandemic, In-Shape operated 65 health clubs with 470,000 members and 3,137 employees.

 

Mort Rothbard founded the company in 1981 and sold a 78% stake to San Francisco, California-based investment firm Fremont Group in 2012. Fremont remains the majority owner at the petition date, according to court documents.

 

The company reports that it has transitioned its business model over the past five years, moving away from long-term contracts and “increasing its focus on member usage and engagement.” In-Shape reported USD 170m in revenue in 2019.

 

The debt

 

The company entered into a first lien credit agreement in 2018 with Bank of America as agent, with the facility consisting of a USD 17m revolver and a USD 53m term loan. The company did not indicate in court documents how much is outstanding on those facilities. Aquiline bought the debt in the summer.

 

 

 

The descent

 

In-Shape follows several other gym operators into Chapter 11 this year as the pandemic forced full or partial closures, including Town Sports InternationalYouFit and 24 Hour Fitness.

 

The company’s story is a familiar one in 2020. In-Shape was forced to close its gyms on 19 March, leaving it with no revenue and leading it to lay off its employees. The company was able to reopen 57 locations in June and hire back about a third of its workforce, but since then has seesawed between opening and closing various locations as the pandemic rages, Chief Financial Officer Sean Maloney said in his first day declaration. At the petition date, In-Shape operated 17 clubs but only with outdoor activities.

 

The company entered into a forbearance agreement with Bank of America in July and an amendment in August with Aquiline when it took over the debt. The company brought on Chilmark Partners to explore strategic alternatives and hired Keller Benvenutti & Kim as legal counsel.

 

Negotiations with creditors yielded a DIP and stalking horse agreement with In-Shape Acquisition 2021, a vehicle of Aquiline and co-investors including Rothbard.

 

The DIP and the sale

 

In-Shape Acquisition has agreed to contribute USD 30.3m in DIP financing, consisting of USD 15.3m in new money and a USD 15.3m roll-up of prepetition debt. Through its stalking horse bid, In-Shape Acquisition would credit bid USD 45.3m in DIP and prepetition debt, contribute USD 250,000 in cash and assume all cure amounts.

 

 

The DIP sets a series of milestones for the case, including a 6 March deadline to close a sale. The debtor is planning to auction its assets on 11 February. Under the bid procedures, the stalking horse would be eligible to receive a USD 1m breakup fee and up to USD 500,000 in expense reimbursement if it is not the top bidder at auction.

 

 

The advisors

 

 

The case is In re: In-Shape Holdings LLC, number 20-13130, in the US Bankruptcy Court for the District of Delaware.

 

by Pat HolohanSara Tapinekis and Seth Crystall