Chicago — The company line from Bally Total Fitness is that the closures of 19 of its clubs in the weeks after Bally filed for bankruptcy are not related to the filing.

Larry Larsen, spokesperson for Bally, says the closures are part of the Chicago-based company's ongoing evaluation of its real estate portfolio.

However, Bally announced the closures just a few days after the Dec. 3 Chapter 11 filing in U.S. Bankruptcy Court for the Southern District of New York in Manhattan. It was the second time Bally had filed for bankruptcy in 17 months.

The cities in which Bally clubs have closed include: Chandler, AZ; Gilbert, AZ; Scottsdale, AZ; Boca Raton, FL; Orlando, FL; Tampa, FL; Dartmouth, MA; Columbus, OH; Pittsburgh, PA; and Salt Lake City, UT. Larsen declined to comment about the closings in these and other cities, citing competitive reasons.

Industry analyst Michael Scott Scudder says that the closures won't have a national effect but will affect the markets where Bally clubs are closing.

"Smart club operators in locales where they are closing clubs would be wise to see if they can buy up membership lists or even ‘buy up’ memberships," says Scudder, who operates the Web site www.cmeto.com. "It may actually prove to be a boon to some club operators in some areas."

Indeed, it appears that this already is taking place. One media outlet in Salt Lake City reported that representatives from local 24 Hour Fitness and Planet Fitness clubs greeted members outside one of the two Salt Lake City Bally clubs that closed.

Tammi Reiss, a personal trainer at one of the two closed Salt Lake City clubs, told the Deseret News of Salt Lake City that her club's membership had dwindled over the last few years as more competition entered the market.

"With the opening of so many Gold's Gyms and so many 24 Hour Fitnesses, the competition definitely increased in the last five years," Reiss told the newspaper. "They had brand new clubs, new equipment and cheaper pricing at times, and they attracted that younger crowd."

Bally, which reported $1.4 billion in assets and $1.5 billion in debt, plans to sell itself or reorganize under Chapter 11. In its July 2007 bankruptcy filing, Bally listed assets of $397 million and debt of $761 million. Although there is no prepackaged plan in place with the recent filing for bankruptcy, Bally says it hopes to emerge from bankruptcy as quickly as possible.

"Over the past five months, Bally has significantly improved its operating processes and expense management and streamlined its organizational structure, leading to a marked improvement in Bally's current and projected operating performance," Bally CEO Michael Sheehan said in a company statement. "Unfortunately, the burden of Bally's long-term indebtedness, coupled with the lack of refinancing options in today's constrained credit markets, have limited our ability to restructure using out-of-court vehicles, leaving Bally with no alternative other than the actions announced."

Sheehan went on to say in the statement that the Chapter 11 process provides the best means for Bally to emerge a stronger, healthier company.

"With the opportunity to restructure our balance sheet and significantly reduce our indebtedness, Bally will have the ability to invest in our clubs and fund future expansion, which will ultimately benefit members and all stakeholders," Sheehan said.

Bally, which had been a public company prior to its July 2007 Chapter 11 filing, emerged two months later as a private company. Bally's emergence was buoyed by $233.6 million from investors led by Harbinger Capital Funds.

According to a report by Bloomberg, Bally reported in its recent filing that it has more than 100,000 creditors. The company owes $247 million in unsecured debt to U.S. Bancorp and $231 million to HSBC Holdings. Bally's debt includes $291 million to first-lien lenders, $247 million to second-lien lenders, and $221 million on subordinated notes.

In court papers, Bally listed its net revenue for the nine months ending Sept. 30, 2008, as $479.5 million, Bloomberg reports. Bally also said in court papers it has 6,820 full-time and 7,750 part-time employees.

Bally said that it will use existing cash reserves to fund its operations. If Bally is able to negotiate a sale with the lenders, it would provide additional cash through debtor-in-possession financing, according to the statement.

Bally has 347 clubs in 26 states. Bally's 39 clubs in the Caribbean, Mexico and Asia are not affected by the filing, Larsen says.

"The company will continue to look at opportunities to manage its portfolio while meeting its customers' needs," Larsen says. "Bally fully anticipates that it will continue operating as a national brand with a national footprint."

Bally has retained Kramer Levin Naftalis & Frankel LLP as bankruptcy counsel and Houlihan Lokey Howard & Zukin as its financial advisers.

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