CHICAGO — After all the dust has settled, it appears that Bally Total Fitness, Chicago, will not only emerge from bankruptcy faster than analysts predicted, but it also appears the number of Bally casualties as a result of bankruptcy has been greatly exaggerated.

A bankruptcy court ruled on Sept. 17 that Bally had met all the requirements to confirm its Chapter 11 plan of reorganization. With this ruling by the U.S. Bankruptcy Court for the Southern District of New York, Bally expected to emerge from Chapter 11 as a private company by the end of last month.

Only one Bally club was scheduled to close as a result of the company's bankruptcy, says Bally spokesperson Matt Messinger. Analysts had predicted that Bally would close 100 or more clubs during bankruptcy. In a liquidation analysis submitted by Bally's attorneys, the company said it expected to close 53 clubs.

In the end, Bally rejected the lease of just the one club in Mission Viejo, CA, and that club was scheduled to close at the end of last month, says Messinger, who adds that there are more than 375 Bally clubs worldwide, including 356 in the United States. Some clubs closed during the time Bally spent in bankruptcy, but that was not a result of the reorganization process, Messinger says.

According to Bally's prepackaged plan, shareholders led by Harbinger Capital Partners, a New York-based private equity firm, would invest approximately $233.6 million in exchange for 100 percent of the common equity interest of reorganized Bally. That would make Harbinger Capital Partners the new owner of Bally Total Fitness.

“The court's confirmation of our plan paves the way for our emergence from Chapter 11, and we look forward to a rejuvenated Bally Total Fitness under Harbinger's leadership,” says Don Kornstein, Bally's interim chairman and chief restructuring officer.

One of the reasons for Bally's apparent quick exit from bankruptcy was its prepackaged plan, in which Bally obtained approval in advance from bondholders before going to bankruptcy court.

In August, the court ruled that Bally could alter its Chapter 11 plan without re-soliciting approval from all creditors, who still hold some of Bally's debt but do not have any of the stock now held by Harbinger. (As of Dec. 31, 2006, Bally listed $396.8 million of assets and $761.3 million of debt.) Once the court ruled that Bally did not have to re-solicit approval from creditors because of Harbinger's superior alternate plan, the company expected to emerge from bankruptcy in 60 to 90 days, Messinger says.

The court also overruled objections to the reorganization plan from landlords of some Bally clubs, most of whom wanted to ensure that Bally was going to continue their leases, Messinger says.

Harbinger Capital Partners, which this year bought more than 400,000 shares of stock from Bally's second-largest shareholder, Liberation Investment Group, has traditionally invested in troubled companies. Typically, private equity firms like Harbinger invest in companies for only a few years and then sell them.

As of June 1, 2007, Harbinger Capital Partners was managing in excess of $8.7 billion through its strategies.

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