Bally cites default danger - Loss posted; number sags on new members
Bally cites default danger - Loss posted; number sags on new members
By James P. Miller
Copyright © 2006, Chicago Tribune
Published September 12, 2006
Financially pressed Bally Total Fitness Holding Corp. warned investors late Monday that it is in danger of defaulting on terms of a credit agreement that comes due in April.
The Chicago health-club operator, citing a sag in the number of new members enrolled, also reported a small net loss for the second quarter.
Bally has been under pressure since late last year, when some of its institutional stockholders began complaining publicly about the company's management. Early this year the nation's leading fitness center owner put itself up for sale--only to pull the plug on that effort in mid-August, saying it had not been able to find a suitable buyer.
Chairman and Chief Executive Paul Toback, who had survived an ouster attempt launched by shareholders in January, resigned in mid-August. He was succeeded on an interim basis by two of the three board members who had successfully been put up for election by Pardus Capital Management LP.
Pardus, which owns a 14.8 percent stake in the company, is one of the institutional holders that first began calling for change in 2005, and it had indicated in late July that it might be interested in acquiring Bally if Bally's search for a buyer did not yield a transaction.
Just over two weeks ago Bally's investors were cheered when Pardus disclosed in a regulatory filing that the Chicago company will provide non-public information to Pardus "for the purpose of evaluating and negotiating a possible strategic transaction."
Since then, neither Pardus nor Bally has offered any elaboration on what the "strategic transaction" might be.
Amid the speculation about Bally's future the company's financial condition has been far from buff.
Monday evening Bally reported its second-quarter results, showing a net loss of $733,000, or 2 cents a share, compared with the year-ago quarter's net profit of $1.6 million, or 5 cents a share.
Revenues declined to $254.6 million from $259.6 million.
Much of investors' unhappiness with Bally can be traced back to the company's earlier restatement of previous results, a move that triggered probes by both the Securities and Exchange Commission and the Justice Department.
In its Monday filing Bally disclosed that as of Aug. 31, borrowings under its $100 million line of credit had increased by $18.5 million, and that it now had only $37.4 million in credit available to it, compared to the $55.9 million available at the end of the June quarter.
"The increase in utilization of the [line of credit] reflects a combination of decreased cash collections of membership revenue," as well as other factors, the firm said in its filing.
In addition, the company pointed out, Bally "will further reduce liquidity" if it makes the coming interest payments that are due in October to holders of its 9 7/8 percent bonds, and in January to holders of its 10 1/2 percent bonds.
If Bally is not able either to reach agreement with its lenders to extend the maturity of its credit agreement or to refinance the credit facility, the company said, it will have "insufficient liquidity to operate its businesses."
The company said Monday it is "actively evaluating various alternatives to address its outstanding debt."
Bally's disclosure came after the market's close Monday. The firm's shares closed up 6 cents at $2.69. At that price, Bally's value as measured by the stock market is just over $111 million.
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jpmiller@tribune.com
By James P. Miller
Copyright © 2006, Chicago Tribune
Published September 12, 2006
Financially pressed Bally Total Fitness Holding Corp. warned investors late Monday that it is in danger of defaulting on terms of a credit agreement that comes due in April.
The Chicago health-club operator, citing a sag in the number of new members enrolled, also reported a small net loss for the second quarter.
Bally has been under pressure since late last year, when some of its institutional stockholders began complaining publicly about the company's management. Early this year the nation's leading fitness center owner put itself up for sale--only to pull the plug on that effort in mid-August, saying it had not been able to find a suitable buyer.
Chairman and Chief Executive Paul Toback, who had survived an ouster attempt launched by shareholders in January, resigned in mid-August. He was succeeded on an interim basis by two of the three board members who had successfully been put up for election by Pardus Capital Management LP.
Pardus, which owns a 14.8 percent stake in the company, is one of the institutional holders that first began calling for change in 2005, and it had indicated in late July that it might be interested in acquiring Bally if Bally's search for a buyer did not yield a transaction.
Just over two weeks ago Bally's investors were cheered when Pardus disclosed in a regulatory filing that the Chicago company will provide non-public information to Pardus "for the purpose of evaluating and negotiating a possible strategic transaction."
Since then, neither Pardus nor Bally has offered any elaboration on what the "strategic transaction" might be.
Amid the speculation about Bally's future the company's financial condition has been far from buff.
Monday evening Bally reported its second-quarter results, showing a net loss of $733,000, or 2 cents a share, compared with the year-ago quarter's net profit of $1.6 million, or 5 cents a share.
Revenues declined to $254.6 million from $259.6 million.
Much of investors' unhappiness with Bally can be traced back to the company's earlier restatement of previous results, a move that triggered probes by both the Securities and Exchange Commission and the Justice Department.
In its Monday filing Bally disclosed that as of Aug. 31, borrowings under its $100 million line of credit had increased by $18.5 million, and that it now had only $37.4 million in credit available to it, compared to the $55.9 million available at the end of the June quarter.
"The increase in utilization of the [line of credit] reflects a combination of decreased cash collections of membership revenue," as well as other factors, the firm said in its filing.
In addition, the company pointed out, Bally "will further reduce liquidity" if it makes the coming interest payments that are due in October to holders of its 9 7/8 percent bonds, and in January to holders of its 10 1/2 percent bonds.
If Bally is not able either to reach agreement with its lenders to extend the maturity of its credit agreement or to refinance the credit facility, the company said, it will have "insufficient liquidity to operate its businesses."
The company said Monday it is "actively evaluating various alternatives to address its outstanding debt."
Bally's disclosure came after the market's close Monday. The firm's shares closed up 6 cents at $2.69. At that price, Bally's value as measured by the stock market is just over $111 million.
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jpmiller@tribune.com
posted by Carlos T Mock @ 7:06 PM
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