CHICAGO — While the clock is still ticking on Bally Total Fitness, the fitness operator now has more time to report its results without defaulting and accelerating its outstanding debt.

Bally, which is under investigation by the Securities and Exchange Commission, missed its self-imposed July 31 deadline for filing audited financial statements and asked its lenders for a 90-day extension. The subordinated noteholders delayed their consent, forcing Bally to extend the consent due deadline seven times. By holding out, these lenders managed to get higher consent fees — $20 in cash for each $1,000 of principal amount compared to the original consent fee of $2.50 in cash for each $1,000 of principal amount.

If Bally hadn't received consent from the lenders to extend the default deadline, more than $700 million would have become immediately due and payable on Aug. 31. Six days before the deadline, Bally announced the majority of the subordinated noteholders approved an extension to Nov. 30, and by the end of August, more than 97% of the senior noteholders gave their consent and received a one-time fee of $15 for each $1,000 of principal amount.

John Maxwell, senior debt analyst for Merrill Lynch in New York City, said during the negotiation process, the subordinated lenders were holding the bargaining chip. While the majority of the senior noteholders turned in their consent forms in early August, less than half of the holders of the 9 ^7/8 senior subordinated notes turned in their consent forms on time. The motive for the subordinated noteholders' holdout probably wasn't to push Bally into bankruptcy because bankruptcy wouldn't have been in the noteholders' best interest, Maxwell said. In this situation, the bank lenders would be paid first, followed by the senior and then the subordinated noteholders.

“If Bally can't make the payments, then the assets will be liquidated and the lenders will be paid out according to their priority,” he said. “At the end of the day, I don't think the subordinated noteholders will get 100 cents on the dollar.”

Maxwell speculated the lenders were trying to force a change in management or get board representation. Bally's board has repeatedly declined the requests of Emanuel Pearlman of Liberation Investments, Bally's largest shareholder, to serve on the board and oust Paul Toback, Bally CEO. But in the past four months, three board members have stepped down, creating possible openings on Bally's board.

The financial reporting deadline wasn't the only issue confronting Bally in August. The fitness chain was also hit with a previously disclosed $14.3 million lawsuit. The Federal District Court in Illinois upheld an arbitration award against Bally relating to a contractual dispute over a program of transferring membership receivables balances into a credit card program. Two weeks later, the company paid the $14.3 million.

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© 2012 Penton Media Inc.