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Firm, Taut Prepack?

posted by John Pottow

I've been following a little bit the Bally's Total Fitness chapter 11 in SDNY.  A couple things of note.  First, it sounded like it would be nice and smooth, with something like 99% of senior debt pledging support.  Then some unhappy creditors came in grumbling about the DIP proposal (which had priming provisions, so three guesses why they were irked).  Next thing I saw is an amended plan with some equity fund injecting cash, but a much different (and lower) level of support than the initial bold predictions of 99%.

So what's going on (I wonder semi-rhetorically to the Credit Slips audience)?  Is this case imploding, or is this par for the course?  Can a prepack "unwrap" itself and morph into a full-blown 11 (in which case, who tied the knots)?  Also, I'm wondering more generally why this business is bust.  Shouldn't be tied to mortgage market, and I'm not aware of corporate malfeasance.

Comments

I'm with you on wondering why it is in. However, the word on the street is that there is a bit of a liquidity crunch for struggling businesses or over-leveraged businesses, having some of the same earmarks as the mortgage mess. There are CLO's just like there are CDO's, and the same lack of transparency and questions about valuation of the underlying asset base abound there. Don't know if that's what's going on here, though. I'd love to hear some input as well.

What this means, however, is that you don't have to have corporate malfeasance to have trouble. All you need is less ready access to new financing.

I've seen a prepack come unwound and turn into a regular chapter 11 before. And wasn't Combustion Engineering originally a pre-pack?

I haven't been following the case closely, so I don't know if this has come up, but last year I got a personal hint that Bally's was having trouble keeping members, female members in particular. I was a Bally's member for years and discontinued about two years ago. Last year I was invited to take part in a focus group about why I had left the gym. Though the focus group coordinator never admitted it, it was clear from the questions that goal of the session was to learn why so many female members were leaving the gym. And I got the impression that a number of these focus groups were being conducted. So perhaps there's an issue on the revenue-generation side of the equation.

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