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Bally Total Fitness requested a cross-default waiver from holders of its USD 280m bank debt last week as it anticipates missing an upcoming bond coupon payment, two sources familiar said.
Bally faces a USD 14.8m coupon payment due on 15 April under its USD 300m 9.875% sub notes due 2007.
During a conference call last Thursday, lenders were asked to waive a potential cross-default that would be triggered by non-payment of the coupon, the sources said. In addition, the gym chain requested lenders provide the company with a 90-day forbearance for its failure to file financial results, the sources added.
The three-month forbearance would alleviate the cross default clause triggered if bondholders served the company with a notice of default from either a missed coupon or a reporting violation, according to SEC filings. The Chicago-based gym operator would subsequently have 30 days, plus two business days, to cure the reporting default and 30 days to pay the coupon.
Without the waiver, Bally’s lenders could accelerate its credit facility, forcing the company to pay them in full immediately. “The borrower acknowledges that the foregoing acknowledgements and agreements by the lenders under this agreement do not apply when holders of debt obligations of the borrower and its subsidiaries exercise their remedies against the borrower and its subsidiaries on the basis of an applicable cross default clause,” according to Bally’s credit agreement.
Bally’s spokesperson declined to comment. Jefferies - Bally’s financial advisor - did not return requests for comment.
Lenders were offered 12.5bps in consent fees in exchange for the waiver, two sources said. The proposed fee met a lukewarm reception from some loanholders, one of the sources added. A handful of the lenders are considering forming a blocking group, but those efforts have not gained traction due to time constraints, explained one of the sources.
Consents are due this Thursday, according to the sources.
Bally’s credit facility comprises a USD 40m revolver, a USD 205.9m term loan B and a USD 34m delayed draw term loan. Holders of the loans include GSC Capital, JP Morgan, Canyon Capital and Morgan Stanley, according to SEC filings.
Assuming Bally misses the upcoming coupon, it will trip the clock on a 30-day grace period during which it can negotiate an out-of-court restructuring or a pre-packaged bankruptcy agreement with holders of the 9.875% sub notes and USD 235m 10.5% of senior notes due 2011, the sources noted. As previously reported by Debtwire, that workout will likely entail a rights offering to recapitalize the company and an equitization of some of the bonds.
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