National: Fitness First secures lifeline as creditors approve CVA plan

HEALTH clubs group Fitness First was thrown a lifeline today as creditors waved through a last-ditch bid to tackle its burgeoning debt pile.

The chain, which employs 1,500 staff in the UK, secured backing for a company voluntary arrangement (CVA), which will allow an overhaul of the company’s leases to go ahead.

The restructuring will see 67 of the company’s 147 gyms in the UK transferred to other operators within the next six months and in the meantime rent on these gyms will be reduced to 55%. Remaining clubs will continue to operate under the Fitness First brand.

Fitness First, which has around dozen gyms in the East of England, at locations including Colchester and Chelmsford, recently secured a deal with most of its lenders to convert debt into equity, but this is dependent on the CVA being agreed in three weeks.

Professional services firm KPMG, which supervised the CVA, said the majority of the group’s landlords voted in favour of the proposals, which will give returns of up to 28p in the pound compared to just 0.5p in an administration.

Andy Cosslett, Fitness First chief executive, said: “This gives us a strong platform on which to build.

“We are now drawing up plans to increase investment in our existing clubs, increase the number of markets in which we operate and increase our levels of service and innovation for the benefit of our million plus members worldwide.”

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Approval of the CVA will also see lenders convert their debt into shares in the business once the restructuring programme is completed.

Fitness First, which has 430 clubs worldwide, recently warned that it was struggling to meet its costs as it buckled under a �400 million-plus debt mountain.

The chain, along with rival LA Fitness, has found revenues squeezed in recent months because consumers are spending less and budget gym operators are growing.

The company was paying �144 million in interest on its borrowings each year on revenues of �636 million, it was previously reported.

Brian Green, restructuring partner at KPMG, said: “As we have sought to develop company voluntary arrangement models, we have worked with creditors to find workable compromise agreements.”

He added: “With the support of its key creditors, Fitness First has been able to find a way to avoid administration.”