In past years, the British fitness club operator LA Fitness suffered from continuing operating losses. According to the latest financial statements for the year ending October 2012, the company made a GBP 19.7 million loss (approx. EUR 24 million) on a turnover of GBP 86.6 million (approx. EUR 105 million). Chief executive Martin Long commented that the reasons are mainly of structural nature. Membership went up to 200,000 by 11,000 members over the last nine month and also revenues had increased.

In 2005, private equity investor MidOcean Partners had taken over LA Fitness. The fitness operator was valued at GBP 90.3 million (approx. 130 Mio. EUR) in the deal. According to company information, GBP 30 million (approx. EUR 40 million) have been invested into the redecoration of the operator’s 80 clubs and into new equipment since the acquisition in order to improve LA Fitness’ competitiveness. At the same time, the growing impact of budget operators like the recently merged Pure Gym and The Gym Group has increased the pressure on the medium price segment.

Recently, LA Fitness was operating with a debt burden of GBP 290 million (approx. EUR 350 million). GBP 130 million originated from bank loans, the remainder from unsecured loan notes. Now, a restructuring plan has been negotiated with the creditors in order to restore the operator’s financial power and operational flexibility. In a debt-for-equity swap Royal Bank of Scotland and other creditors seized control of LA Fitness, as reported by Daily Telegraph. Furthermore, 33 of the currently 80 clubs shall be sold in order to reduce the debt liability by GBP 250 million to GBP 40 million.

Company voluntary agreements (CVA) with the landlords reducing rental payments are an important component of the plan. They are a method to rescue a company from insolvency in a financial crisis. LA Fitness hopes to decrease payments for the 33 clubs that shall be sold by 55% for six months; the rent on further seven clubs shall be reduced by 40% while the remaining clubs and the headquarters fall either outside the CVAs or rents shall remain the same. The approval of the proposed CVAs by the landlords is a crucial parameter to the success of the restructuring.

Chief executive Martin Long and its management team will retain a stake in the company. It is unclear in which position Fred Turock will remain after the restructuring. He had founded the LA Fitness together with Jeremy Taylor and David Turner in 1990 and was chairman of the company after MidOcean Partners had bought it.

Sources: telegraph.co.uk, gloucestershireecho.co.uk