Bankrupt 24 Hour Fitness Worldwide Inc. won court approval of a $250 million post-bankruptcy loan, allowing the gym chain to maintain operations at least until the new year.
The debtor-in-possession loan, approved Friday by Judge Karen B. Owens of the U.S. Bankruptcy Court for the District of Delaware, incorporates a deal 24 Hour Fitness reached with its DIP lender—a group of participating pre-bankruptcy lenders—and a majority of its landlords.
Under the agreement, 24 Hour Fitness will begin paying its rents in full for its open clubs as of July, the gym’s attorney, Ryan Preston Dahl of Weil, Gotshal & Manges LLP, said at a virtual hearing Friday. It will pay 30% of its rent to landlords of facilities that the gym intended to open, but which have been shut down by state or local government orders.
The deal comes after a DIP approval hearing earlier this month was continued when 24 Hour Fitness disclosed that its facilities in several California counties were being ordered shut in the wake of the pandemic.
The loan will be sufficient to keep the company going until 2021, even if all its clubs nationwide are shut down, Dahl said. The $66 million loss from the California shutdowns will be offset by about $85 million in operational cost savings, the gym said in a July 30 court filing.
Not all landlords have to abide by the agreement. A landlord can elect to opt out of this treatment and pursue payment of its rent in full, but 24 Hour Fitness will retain all its rights to claim defenses, including the landlord’s failure to provide access to its premises because of impossibility or force majeure.
Landlords also can negotiate with 24 Hour Fitness for some other treatment of their rent claims.
Owens Friday also denied the request of a Houston-area landlord for permission to sue in state court to get out of its lease.
The judge said at a July 29 hearing that she would consider the landlord’s request if 24 Hour Fitness couldn’t establish that the landlord had “adequate protection” for being paid. Approval of the DIP loan was sufficient to assure the rent payments going forward, Owens said.
The case is In re 24 Hour Fitness Worldwide, Inc., Bankr. D. Del., No. 20-11558, hearing 7/31/20.