24 Hour Fitness Bankruptcy Loan Request Delayed Over Shutdown

July 14, 2020, 8:59 PM

A bankruptcy judge delayed issuing a decision on 24 Hour Fitness Worldwide Inc.'s approval request for a $250 million bankruptcy loan, expressing concern that the gym operator may not be able to sustain a sufficient revenue stream after California’s latest business shutdown order in response to Covid-19.

Judge Karen B. Owens of the U.S. Bankruptcy Court for the District of Delaware continued Tuesday’s hearing to Wednesday morning. The judge said she didn’t have confidence in the loan budget submitted with the loan request now that a substantial amount of revenue will be cut off with the newly closed locations.

“What happens if gym shutdowns are similarly ordered in Florida or Texas?” Owens asked.

She asked the company’s representatives if the debtor-in-possession loan was enough to keep it operating, including paying rent for reopened stores at least through September. The company resolved unsecured creditors’ objections.

California Gov. Gavin Newsom’s (D) closure order covers counties that house about 80% of California’s population, 24 Hour’s attorney Ryan Preston Dahl of Weil, Gotshal & Manges LLP said at the video-conference hearing.

The order will result in shutting down 151 locations that were previously among the 245 locations the company was operating as of July 1, Dahl said.

The DIP loan lender, 24 Hour Fitness, and unsecured creditors have agreed on a rent payment schedule. They also agreed that the new loan won’t be secured by “avoidance power” claims of the debtor—actions to claw back money paid by the company to creditors or other parties prior to the June 15 bankruptcy filing.

But a number of landlords continue to object to the loan, saying they’re being forced to shoulder too much of the risk that the company’s reorganization will fail. They previously objected to the gym’s request to extend rent payment deadlines.

Owens granted interim approval for the DIP loan June 16, authorizing the company to draw $50 million at that time.

The case is In re 24 Hour Fitness Worldwide, Inc., Bankr. D. Del., No. 20-11558, hearing 7/14/20.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com

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