Privately-held Gold’s Gym sought bankruptcy protection, hoping to file a consensual Chapter 11 plan that will allow it to exit bankruptcy in August and reopen majority of stores shuttered by the Covid-19 pandemic as soon as the lockdowns are lifted.
Founded in 1965 by Joe Gold in Venice Beach, California, the Gold’s Gym and its affiliates presently boast one of the largest networks of company-owned and franchised fitness centers in the world. The business began its franchise operations in the early 1980s and has grown into a global icon with nearly 700 locations serving approximately 3 million people across six continents each day. Today, the Debtors own and operate approximately 95 gyms domestically, and hold franchise agreements for more than 600 gyms domestically and internationally.
Before the temporary closures caused by the COVID-19 pandemic, the Debtors employed over 4,600 employees at the corporate offices and company-owned gyms. As of the Petition Date, the Debtors employ approximately 111 active employees, of whom approximately 107 are full-time salaried and hourly employees and approximately 4 are part-time employees, and 4,597 furloughed employees, of whom approximately 1,090 are full-time salaried and hourly employees and approximately 3,507 are part-time employees.
The Debtors’ majority owner — TRT Holdings, Inc. — acquired the business in 2004.
Events Leading Up to the Bankruptcy Filing
CEO Adam Zeitsiff explains that while many factors led to the need for bankruptcy relief, no single factor caused more harm to the Debtors’ business than the current COVID-19 pandemic, emergency declarations and corresponding guidelines, shelter-in-place or stay-at-home orders from local, state, federal and, in some cases, international or foreign authorities. In mid-March, in response to the growing COVID-19 pandemic, the Debtors were forced to temporarily close all company-owned gyms, and, on information and belief, all or substantially all of the franchisees around the U.S. followed suit within days or weeks.
As of the Petition Date, all company-owned gyms remain closed. As a result, the Debtors have been unable to collect membership dues and have no other revenues being derived from their gym operations. Additionally, because a majority of the Debtors’ franchise locations remain closed during the pandemic, the Debtors are not receiving ordinary franchising fees.
In light of the sudden and widespread closures brought on by the pandemic, the Debtors began contacting their landlords in late March and early April to advise that they were unable to make ordinary rental payments in April and to request rent abatements or concessions during the temporary closures. As of the filing, the Debtors have continued discussions with the majority of their landlords and believe they will be able to cure and assume (with modifications) the majority of the leases for their company-owned gyms.
Unfortunately, the Debtors anticipated that they would not be able to reach agreements with all of their landlords. Before the filing of these Cases, the Debtors determined that approximately 32 of their company-owned gyms could not be renegotiated to a level that would allow the gyms to be maintained to the high “Gold’s Gym” standard. For that reason, the Debtors decided to close those gyms and reject those 32 leases as part of this bankruptcy filing.
The Debtors have already notified their pre-petition lenders about this decision and believe that it is in the best interest of the bankruptcy estates to abandon any remaining assets in those locations. While most of the equipment in these 32 locations was removed before the commencement of these Cases, the Company believes that the residual value of any equipment remaining in those locations is of inconsequential value to the estates and should be abandoned in conjunction with the lease rejections.
Goal of the Bankruptcy Case
The goal of the bankruptcy is to ensure the strength and continuity of the Debtors’ business so that there is no disruption to members, franchisees or licensees once the Debtors and their franchisees are able to reopen their respective gyms around the nation and the world. Before the commencement of these Cases, the Debtors negotiated with TRT Holdings or its affiliate, the majority owner of GGI Holdings, LLC, and its senior secured lenders regarding terms of a consensual plan. While the terms are still being finalized, we expect to file a largely consensual plan within the first week of the Bankruptcy Cases, and that plan will effectuate a sale or similar restructuring transaction to TRT Holdings or its affiliate. The Debtors believe the terms of this transaction will be fair and reasonable given current state of the Debtors’ business and the surrounding circumstances, because the consideration will be sufficient to: (i) satisfy obligations to the Debtors’ senior secured lenders,(ii) satisfy any post-petition financing obligations incurred during these Bankruptcy Cases, (iii) cure monetary defaults with landlords in gyms that will be maintained, (iv) pay all operating expenses during the course of the Bankruptcy Cases; and (v) establish a settlement fund from general unsecured creditors may receive meaningful distributions on their claims. Once filed, the Debtors will seek approval of the disclosure statement as soon as practicable, preferably in mid-June, with the goal of having the plan confirmed by the end of July so that the business can emerge as the country begins to recover from the COVID-19 pandemic. Meanwhile, during the course of these Bankruptcy Cases, the Debtors intend reopen their locations as soon as state, local and federal authorities will allow, and soon as the Debtors’ own reopening safety standards are met, so that the business can reemerge as the world begins to recover from the COVID-19 pandemic.
$9 Million Financing
Accordingly, the Debtors requested a debtor-in-possession loan from its majority owner TRT Holdings (or, in its capacity as debtor-in-possession financing lender, the “DIP Lender”). The Debtors intend to borrow enough funds to operate in the ordinary course of business during these bankruptcy Cases.
The Debtors anticipate needing approximately $3.5million in new financing during the first 14 days of these Cases, $9 million in the first 30 days, and up to $20million over the course of the 13-week budget period.
The DIP Credit Agreement will include specific milestones for the conclusion of these Cases, including the filing of a plan by May 15, 2020, approval of a disclosure statement by June 15, 2020, and confirmation of a plan by August 1, 2020. Based on the pre-petition negotiations among the parties, the Debtors fully anticipates to beat these milestones to emerge quickly under a confirmed chapter 11 plan
About Gold’s Gym
Founded in 1965, Gold’s Gym operates a network of company-owned and franchised fitness centers. It owns and operates approximately 95 gyms domestically, and holds franchise agreements for more than 600 gyms domestically and internationally. Its majority owner — TRT Holdings, Inc. — acquired the business in 2004.
GGI Holdings, LLC, Gold’s Gym International, Inc. and other related entities sought Chapter 11 protection (Bankr. 20-31318) on May 4, 2020.
GGI Holdings was estimated to have assets and debt of $50 million to $100 million
The Hon. Harlin Dewayne Hale is the case judge.
The Debtors tapped Dykema Gossett PLLC as bankruptcy counsel. BMC Group Inc. is the claims agent.