Poole: Fitness First announces CVA proposal

Fitness First, the Poole-headquartered health and fitness club group, has announced plans for a CVA, company voluntary administration.
The group, which started with a single fitness club in Bournemouth in 1993, and now has 140 clubs in the UK and many more worldwide, needs the CVA as a "vital lifeline".

Commenting on the CVA, Richard Fleming, UK head of restructuring at KPMG and proposed supervisor of the CVA, said: “The CVA proposed by Fitness First gives the company a vital lifeline to avoid administration, by renegotiating the lease terms of its property portfolio. In order for a CVA to be proposed, the company must be facing administration – it cannot be used simply to duck onerous leases - and the CVA must always offer a better return to creditors than an administration. In the case of Fitness First, we estimate the return to compromised landlords to be within a range of 23-28p in the £1 versus less than 0.5p in the £1 in administration. Importantly the CVA is part of a wider restructuring of the company, involving the transfer of the equity to the debt holders and injection of a new £100m loan facility from the lenders.  The wider financial restructuring is dependent on the approval of the CVA by the creditors.

“As we have developed CVAs since the crash of 2008, we have sought to incorporate the feedback of the many landlords we have spoken to.  This CVA seeks to strike a balance which allows the viable part of the business to move forward and provide a fair compromise to the landlords.”

The key facets of the Fitness First CVA are:

• All of the Fitness First gyms currently trading will remain open.
• A total of 57 gyms will be retained at current rents which will be paid monthly as opposed to quarterly for three years.
• The leases of a further 18 gyms are held in other Fitness First companies on which the Fitness First CVA will have no impact.
• A further five gyms will be retained at a reduced equivalent monthly rent of 65% for three years before reverting to market-based rent for the remainder of the lease terms.
• The company is seeking to transfer 67 gyms to other operators within the next six months in order to minimise the impact on landlords, other creditors and members. A marketing exercise has been undertaken resulting in interest being received for the majority of these sites.  In the meantime, rent on these gyms will be reduced to 55% for six months, which is similar to the previous high profile CVAs KPMG has supervised in recent years.
• An identical compromise is to be applied to 14 head leases of premises which have been sublet to other operators and to eight leases of vacant sites.
• The company will continue to pay rates, which is of great importance to landlords, until such time as replacement occupiers/operators are found.
• The CVA will contain a so-called ‘claw back’ clause which allows the compromised landlords to share in the turnaround of the business.

Brian Green, restructuring partner and second proposed CVA supervisor, added: “CVAs have inspired controversy in the past - understandably from the creditors who are compromised - but it is important to stress that the CVA can only take effect with the consent of 75% of creditors. The creditors will fare better in a CVA than they would do in an administration.  We believe CVAs are an important tool in an insolvency practitioner’s kit and gives companies an option of last resort before the appointment of administrators, which can be more expensive and disruptive to operations, protecting more of the business and jobs.”

Resources: Fitness First website