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24 Hour Fitness Files for Bankruptcy Amid Onslaught of Gym Closures

Bloomberg logoBloomberg 6/15/2020 Katherine Doherty
(GERMANY OUT) USA California San Diego - neon sign of the "24 hour Fitness" gym (Photo by Dünzl/ullstein bild via Getty Images) © Dünzl/ullstein bild via Getty Images (GERMANY OUT) USA California San Diego - neon sign of the "24 hour Fitness" gym (Photo by Dünzl/ullstein bild via Getty Images)

(Bloomberg) -- 24 Hour Fitness Worldwide Inc. sought court protection from its creditors, unable to keep up with debt payments after the prolonged shutdown caused by coronavirus outbreak.

The fitness chain’s Chapter 11 petition was filed in Delaware, court papers show. Chapter 11 allows a company to keep operating while it works out a plan to pay its creditors and ease its debt load.

Even before the onslaught of the coronavirus, middle-tier operators like 24 Hour struggled with customer defections to higher-end or budget-friendly fitness options. The gym operator posted a 2% revenue decline in unaudited fourth-quarter earnings, Bloomberg reported.

Privately held 24 Hour, with more than 430 clubs and based in San Ramon, California, reported a slide in 2019 earnings partly due to the rocky debut of an automated system for checking in and signing up customers. Memberships at the company fell to 3.4 million in 2019’s third quarter from 3.5 million in the second quarter, according to Moody’s Investors Service.

Cancellation Cost

Cancellations are killers for gyms. It costs twice as much to recruit a new member as it does to retain an existing one. Roughly 28 of 100 U.S. gym members are expected to bail this year, according to trade group International Health, Racquet & Sportsclub Association.

Chief Executive Officer Tony Ueber had to close all of the chain’s gyms in the middle of March, in line with other businesses across the U.S., to stop the spread of the virus. The company fully drew its $120 million credit line to cope with the expected impact of the pandemic.

Management had been in talks with creditors to rework its debt load, but negotiations ended in a stalemate around the time of the closures, 24 Hour Fitness said in a March 23 earnings report.

The case is Bankruptcy Petition #: 20-11558, U.S. Bankruptcy Court for the District of Delaware.

(Updates with background in second half of story.)

For more articles like this, please visit us at bloomberg.com

©2020 Bloomberg L.P.


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