December 28, 2020 – Further to its November 23rd bidding procedures order [Docket No. 136], the Court hearing the YouFit Health Clubs cases issued an order approving the sale of the Debtors’ assets to YF FC Acquisition, LLC (the “Buyer,” an acquisition entity created by prepetition-turned-DIP lenders) [Docket No. 564]. The November 10, 2020 asset purchase agreement (the "APA"), signed on behalf of the purchasers by Birch Grove Capital as sole member and detailing the terms of a $75.0mn credit bid, is attached to the order as Exhibit A-1 with a brief December 4, 2020 amendment attached as Exhibit A–2.
On December 15th, absent the receipt of any qualified bids other than that of the Buyer, the Debtors canceled the auction scheduled for December 21, 2020 and designated the Buyer as the successful bidder [Docket No. 521].
Key Terms of the APA:
- Sellers: The Debtors
- Buyer: YF FC Acquisition, LLC
- Purchase Price: The aggregate consideration for the sale and transfer of the Acquired Assets to the Buyer (the “Purchase Price”) shall be not less than $75.0mn, which shall be payable in the form of: (a) a credit bid or assumption by the Buyer or its assignee of up to the full amount of the DIP Obligations; plus (b) a credit bid or assumption by the Buyer or its assignee of the remaining balance in an amount up to the full amount of the Prepetition Obligations; plus (c) the assumption of Assumed Liabilities (including the Cure Amounts).
- Bidder Protections: $1.0mn initial overbid amount. Subsequent bids must be in minimum of $500k increments.
Background
The Debtors’ bidding procedures motion [Docket No. 17] notes, “The goal of these chapter 11 cases is to consummate a sale of the Debtors’ assets that will maximize recoveries for the Debtors’ estates and maintain a viable business. Absent the agreement of the Debtors’ prepetition secured lenders to serve as a stalking horse bidder and to provide debtor-in-possession financing and access to cash collateral to fund the sale process and working capital needs pending a sale, the Debtors would have been forced to cease operations, close their locations and lay off their remaining employees. Accordingly, in connection with their post-petition financing, the Debtors have agreed to certain reasonable milestones, which are an important part of the sale process.
As detailed in the First Day Declaration and the Sale Declaration, in August of 2019, the Debtors, in consultation with their legal and financial advisors, began exploring transactions through which to sell all or substantial parts of their business. To that end, the Debtors initially engaged Citigroup Global Markets Inc. (‘Citi’) to conduct an extensive and comprehensive marketing process. However, due to the suspension of operations and closure of clubs resulting from COVID-19 in March of 2020, the Debtors and Citi did not complete the marketing and sale process. A single strategic investor submitted a non-binding indication of interest, but discussions did not result in an offer for the business or distinct assets of the business.”
Prepetition Marketing
In June of 2020, the Debtors retained FocalPoint Securities, LLC as its investment banker (‘FocalPoint’) to re-start the marketing process. As part of this renewed process, over the past five (5) months since its engagement, FocalPoint contacted over 100 potential strategic and financial buyers. Of those contacted, 51 parties executed confidentiality agreements and were given operational, organizational and financial information on the Debtor. In addition, follow-up diligence calls were held with 26 parties. Conversely, 51 formally declined to engage in discussions. The Debtors ultimately received non-binding indications of interest from five parties interested in pursuing a transaction (collectively, the ‘Indications’). While the Debtors were unable to reach an agreement with any of these parties on an out-of-court basis, the Debtors believe that this process which began over a year ago in August of 2019, was of sufficient length and breadth to reach the full universe of parties likely to be interested and reflected a reasonable attempt to reach an out-of-court transaction with a strategic or financial party given the Debtors’ liquidity and time constraints.
None of the Indications included a purchase price that was sufficient to satisfy in full the obligations owed to the Prepetition Lenders. Nor did any of the Indications provide for a going-concern sale of the Debtors’ assets sufficient to preserve value, save jobs and maximize recoveries for stakeholders. The Debtors were not able to obtain the Prepetition Lenders’ agreement to designate as stalking horse bidder any of the parties submitting the Indications.
Accordingly, the Debtors negotiated a sale transaction with the Prepetition Lenders under which the Prepetition Lenders would (through a special purpose entity) act as the Stalking Horse Bidder. In connection therewith, the Prepetition Lenders have agreed to provide a post-petition financing facility (the ‘DIP Facility’) and access to cash collateral to fund the auction process, and the Debtors and the Prepetition Lenders executed the Stalking Horse Purchase Agreement for the purchase of the Debtors’ going-concern business. As a result, the Debtors are able to preserve the value of their assets, maintain their business operations for the benefit of vendors, taxing authorities and service providers and ensure that employees will be able to keep their jobs on substantially the same terms and conditions under which they are currently employed.”
About the Debtors
According to the Debtors: “At Youfit Health Clubs, we’re on a mission to change what going to the gym means. Our health clubs are a place where you can get a great workout in a welcoming environment. Whether it’s your first time visiting a gym or you’ve been going for years, you’ll find the support and services you need to make the most of our fitness.
The first Youfit Health Clubs location opened in St. Petersburg, Florida in 2008. Since then, we’ve expanded with locations throughout the country and we’re continuing to grow. Each Youfit Health Clubs location offers easy-to-use workout equipment, awesome amenities, and friendly YouCoaches who are ready to help. Many locations have also expanded to offer YouGX Group Fitness Classes, child care, HIIT areas and additional amenities.”
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