In-Shape operated more than 60 health clubs throughout California prior to the outbreak of COVID-19. As a result of the pandemic and the state-mandated restrictions imposed on its clubs, the company was unable to service over $70 million of funded debt or make lease payments on its club portfolio. With liquidity dwindling and significant uncertainty regarding its ability to reopen its clubs as the pandemic progressed, In-Shape desperately needed a financial backer who believed in its long-term prospects and could support its short-term funding needs.

Unfortunately, it became evident that the company’s existing stakeholders were not going to be the source of additional capital, and that a liquidation of the business– which would mean the destruction of thousands of jobs – was a very real possibility. Chilmark Partners arrived on the scene shortly after In-Shape’s clubs were forced to close, and worked tirelessly alongside management to craft a plan to save the company. This included evaluating opportunities to optimize the club portfolio and creating a business plan for prospective investors. It also included negotiating with the company’s landlords to keep the club portfolio intact while evaluating options, as well as with the company’s lenders to give the company time to run a sale process.

As In-Shape’s investment banker, Chilmark Partners conducted a comprehensive marketing process for the company, contacting over 160 strategic and financial parties. After extensive interaction with the prospective investors, Chilmark identified an investor group willing to provide $15 million of new money in the form of debtor-in-possession financing. This much needed capital saved the company from immediate liquidation and provided it with runway to consummate a sale transaction in bankruptcy. After negotiating the terms of the financing and an asset purchase agreement, In-Shape filed for chapter 11 in the District of Delaware.

The investor group ultimately acquired In-Shape in a court-supervised section 363 sale. The sale was supported by the unsecured creditors committee, which concluded that the process was fair, competitive, and transparent. In-Shape also utilized the Chapter 11 process to significantly deleverage the company’s capital structure, optimize its real estate portfolio, and achieved improved lease economics on its go-forward clubs. In addition, the new owners agreed to assume all gym membership liabilities (e.g. prepaid dues and gift cards) and the majority of the company’s leases and contracts. And perhaps most importantly, the transaction preserved the jobs of more than 1,800 In-Shape employees and prevented the closure of dozens of health clubs serving over 200,000 members.

Over the course of our engagement, our services included:

• Assisting management with preparation of a business plan and projections
• Preparing marketing materials
• Running a pre-petition marketing and sale process, in which we contacted over 160 strategic and financial parties to gauge interest in the company
• Facilitating a sale of the company’s pre-petition credit facility to a third-party investor, which paved the way for the buyer of that debt to provide debtor-in-possession financing and serve as the stalking horse bidder
• Negotiating key terms of the debtor-in-possession financing and asset purchase agreement with the lender and stalking horse bidder
• Evaluating the company’s pro forma club portfolio and assisting with landlord negotiations
• Assisting management with cash flow forecasting and reporting requirements
• Interacting with the unsecured creditors committee during its investigation of matters including the pre-petition marketing process, the insider status of the stalking horse bidder, and other potential claims that could be pursued. As a result of its investigation, the committee endorsed the fairness of sale process and provided support for the sale

Next »