Fitness First fighting for its future in talks with banks over debt burden

THE largest health club group in the world, Fitness First, is facing tough discussions with its lenders as it moves close to breaching bank loan terms.

The gym chain, which employs 13,000 people and has 1.2 million members worldwide, is understood to be drawing up a turnaround strategy in a bid to persuade its banks to refinance its �550 million debt burden.

But as it stands Fitness First, which has 430 clubs worldwide, including 140 in the UK, is currently set to breach banking convenant tests at the end of this month.

The chain’s owners, private equipty firm BC Partners, has fired the company’s top management team as part of an overhaul, including chief executive Colin Waggett, finance director Duncan Tatton-Brown and UK managing director John Gamble, it has been reported.

Meanwhile, other funds, including Monarch and Oaktree Capital, are understood to be circling the gym chain’s �530million of debt in hopes of a default.

Rothschild and veteran restructuring consultant Donald Featherstone, European head of the turnaround practice AlixPartners, have been hired as advisers on its negotiations with lenders.

Fitness First, which has 10 clubs in the East of England, at locations including Colchester, Chelmsford, Norwich, Brentwood, Basildon and Southend, has in the last five years seen its underlying earnings decline from �146million to �115million last year.

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But BC Partners’ biggest problem is that the entire debt is due to be repaid between this summer and September 2013, and therefore has to be refinanced.

BC is expected to inject more capital into the company as well as ask banks to take a “haircut” on what they are owed. Other options include a debt-for-equity swap.

BC Partners was forced to pull a planned �1billion Singapore listing in 2011, after 17 of the 20 previous flotations tanked below their flotation listing price.