💥New Chapter 11 Bankruptcy - Blink Holdings Inc.💥
Gym operator of 100+ locations files bankruptcy to pursue sale transaction.
On August 12, 2024, Blink Holdings Inc. (“Blink”) and 137 affiliates (collectively, the “debtors”) filed chapter 11 bankruptcy cases in the District of Delaware (Judge Stickles) — the latest sacrifice to the bankruptcy gods who’ve been dropping fitness companies into bankruptcy these past four years like a TRT-infused meathead drops a deadlift (see also 24 Hour Fitness, Town Sports International LLC, Gold’s Gym, YouFit Health Clubs LLC, etc.). The debtors are indirect subsidiaries of Equinox Group LLC (“Equinox”), a higher end fitness club operator that has, by the skin of its teeth, avoided a bankruptcy court via a series of increasingly harsh out-of-court refinancing/recapitalization transactions; it is not a debtor here either,“and it is not anticipated” that’ll change says CRO Steven Shenker of Portage Point Partners in his first day declaration.
Alo-wearing (oh gawd no, not Lululemon anymore, guys) gym goers will appreciate the assurance. The debtors, like Equinox, operate gyms. Oh, we’re sorry, over to you, Mr Shenker. The debtors are “…a leading provider of fitness services in the high value, low price fitness category. The Debtors deliver a premium fitness experience, emphasizing inclusivity and positive messaging, using a simplified club infrastructure, which has enabled the Debtors to scale their business model.”
What does that even mean? Is it some sort of self-esteem rearmament camp? Nevertheless, if forced, we’d prefer the debtors — we want to know more about the “alien believer” — over the icy, soulless and faux-luxury promised by Equinox. The folks in the Blink pic look friendly albeit perhaps a bit lazy, a nice vibe to broadcast about a gym. Enough consumers of fitness services bought into the goofy but warm-hearted vision to support 92 corporate-owned and 10 franchised locations in New York, New Jersey, Massachusetts, Illinois, California and Texas.
And then came …
… Covid. The debtors took the same hits as their peers. You know the drill by now: closures, constrained liquidity, necessitated rent deferrals, etc., etc. Then came higher interest rates. The debtors did the usual cost-cutting/cash conservation exercises, negotiated waivers of “certain events of default” under the senior secured credit facility, raised funds from Equinox via an unsecured subordinated note and sought rent relief from landlords.
In early ‘22, the debtors engaged an investment banker to assess out-of-court strategic options. The process “did not yield indications of interest at values that the Company determined would be actionable,” which is a fancy way of saying that the interest was at a purchase price likely far below the amount of debt. The debtors engaged a real estate broker to renegotiate or amend leases, or outright terminate them. The broker achieved improved terms for a number of locations, but not enough to “meaningfully impact” the grim liquidity picture. Good effort though, guys. 👍
Enter the rest of the army (or RX professionals): Young Conaway Stargatt & Taylor LLP as legal, Portage Point Partners as financial advisor, and Moelis & Co. as investment banker. The board instructed those worthies to solicit interest in a refinancing or an outright sale. In July, 2024, the debtors began marketing their assets to a “targeted group of potential purchasers.” This time there was “substantial interest” and “robust participation.” The prepetition lenders caught the spirit, and provided $6.9mm in bridge financing (aka “protective advances”) to support the process. The debtors appointed a “special restructuring committee” (the “Restructuring Committee”) and granted it authority to “manage all matters and make all financial decisions” regarding the same. The committee has exactly one member: Emmanuel Pearlman, appointed as an independent director for the sole purpose of becoming the committee.
The debtors’ obligations are as follows.
The secured piece dates to November ‘18, when the debtors entered a $145mm senior secured credit facility with Varagon Capital Partners as administrative agent. The facility consisted of a $70mm term loan drawn at closing; $50mm in delayed-draw term loans, and a $25mm revolver, the latter of which was upsized to $30mm in ‘19. According to the DIP motion (docket 13), the facility was “subsequently” amended to provide for an additional $50mm of delayed-draw term loans, defer certain interest payments and waive certain principal payments.
On November 15, 2022, Varagon agreed to amend the facility to replace the net leverage covenant with a minimum consolidated adjusted EBITDA covenant. In exchange, the debtors repaid $35mm of the facility — the revolver and $5mm of the term loan — with funds from a subordinated note facility provided by Equinox (of which $103.5mm remains outstanding as of the petition date). Risk off, Varagon! Risk on Equinox!
Two more amendments came in July: among other things, these provided for the $6.9mm in bridge financing/”protective advances,” in exchange for which the debtors agreed to the rollup of the advance into a post-petition credit facility.
About that DIP. The debtors are looking at $73.5mm, of which $21mm is new money (half on an interim basis, the rest final). The remainder is a roll-up. Varagon, of course, ain’t doing this for free and will get an admin fee and a commitment fee on the new money.
With limited changes, the debtors obtained all requested relief at the first-day hearing on August 12, 2024. A “second day” hearing is set for September 10, 2024 at 1pm ET.
The debtors are represented by Young Conaway Stargatt & Taylor, LLP (Michael R. Nestor, Sean T. Greecher, Allison S. Mielke, Rebecca L. Lamb, Benjamin C. Carver) as legal; Portage Point Partners LLC (Steven Shenker) as financial advisor; and Moelis & Co. LLC (Andrew Swift) as investment banker. Varagon is represented by Katten Muchin Rosenman LLP (Peter Knight, Allison Yager) and Morris Nichols Arsht & Tunnell LLP (Curtis Miller, Avery Jue Meng) while Equinox is represented by Cleary Gottlieb Steen & Hamilton LLP (Lisa Schweitzer, Thomas Kessler) and Ashby & Geddes PA (Ricardo Palacio, Destiny Kosloske).
Company Professionals:
Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Sean Greecher, Allison Mielke, Timothy Powell, Rebecca Lamb, Benjamin Carver)
Financial Advisor: Portage Point Partners (Steven Shenker)
Investment Banker: Moelis & Company (Andrew Swift)
Communications Advisor: FTI Consulting Inc.
Claims Agent: Epiq (Click here for free docket access)
Other Parties in Interest:
Pre-petition & DIP Agent: Varagon Capital Partners Agent LLC
Legal: Katten Muchin Rosenman LLP (Peter Knight, Allison Yager) and Morris Nichols Arsht & Tunnell LLP (Curtis Miller, Avery Jue Meng)
Subordinated Noteholder: Equinox Group LLC and Equinox Holdings Inc.
Legal: Cleary Gottlieb Steen & Hamilton LLP (Lisa Schweitzer, Thomas Kessler) and Ashby & Geddes PA (Ricardo Palacio, Destiny Kosloske)
Stalking Horse Purchaser (of NY and NJ locations): Pinnacle US Holdings LLC
Legal: Latham & Watkins LLP (George Davis, Ted Dillman, Whit Morley) and Cole Schotz PC (Norman Pernick, G. David Dean)
Official Committee of Unsecured Creditors
Legal: Kelley Drye & Warren LLP (Eric Wilson, Kristin Elliott, Andres Barajas, Connie Choe, John Ramirez) and Morris James LLP (Eric Monzo, Brya Keilson, Siena Cerra)
Financial Advisor: Dundon Advisors LLC (Peter Hurwitz)