Gordian Group orchestrated a restructuring strategy that saw debt reduced by 30% while preserving Old Equity’s control. The Company also implemented a creative financial engineering strategy that helped protect the sponsor’s new investment.
Undisclosed National Health and Fitness Company
CLIENT: Undisclosed National Health and Fitness Company
The Company is an owner of health and fitness facilities. As of December 2019, the Company had revenue and EBITDA of over $100 million and $30 million, respectively.
However, the Company’s financial position began to deteriorate due to a change in consumer demand and preferences; in the midst of efforts to address this change in demand, the COVID-19 pandemic threw the Company into a liquidity crisis. Shelter-in-place laws caused franchisees to shutter almost all locations and the Company was facing an imminent cash crisis and was unable to make debt service payments.
Gordian and counsel advised the Company to drive towards a solution that gave the business liquidity and covenant “runway” while also rightsizing the capital structure and maintaining old equity’s control position. We designed a credible chapter 11 strategy aimed at bringing the Lenders to the table, constructively, by making it clear that the Company preferred a consensual resolution but that stakeholders were also prepared to pursue more draconian strategies that could be implemented unilaterally without lender consent should a consensual deal not be available.
Gordian and counsel (Kirkland & Ellis) were subsequently retained by the Company to effectuate a long-term restructuring solution to right-size the balance sheet and provide Client with the liquidity runway and operational flexibility to navigate through the uncertainty of the COVID-19 crisis.
Because of our creative and aggressive credible threats, together with the Sponsor’s willingness to make a new investment pursuant to a global ‘fix’, the Lenders agreed to (i) a 30% debt write-off; (ii) material debt service reductions for 18 months and (iii) the suspension of financial covenants for almost two years. The parties also agreed to a Gordian-created financial engineering structure that protected the new money investment should the COVID crisis have a lasting impact.