CHICAGO — The amount of time Bally Total Fitness spends in bankruptcy may be less than the amount of time industry observers spent speculating about when the Chicago-based company would file for bankruptcy.

A hearing was scheduled for Sept. 17 in the U.S. Bankruptcy Court for the Southern District of New York to confirm Bally's amended plan of reorganization. After confirmation, Bally expected to implement the amended plan and emerge from Chapter 11 by the end of September. The company filed for bankruptcy on July 31.

Michael Scott Scudder, owner of the online consulting firm MSS FitBiz Connection, says that Bally cannot emerge from Chapter 11 that quickly. However, Uzzi Raanan, a bankruptcy attorney in Los Angeles, says the company's aggressive timelines for emergence may be possible. Although Raanan admits he has not followed Bally's proceedings closely, he does know that one of Bally's biggest problems was its debt, which according to court papers was $761.3 million as of Dec. 31, 2006.

“If that's the only issue, if they don't have any labor issues, if they don't have any real estate issues, if they don't have any vendor issues, then it's certainly doable,” Raanan says.

Harbinger Capital Partners, which bought more than 400,000 shares of stock from Bally's second-largest shareholder, Liberation Investment Group, proposed the amended plan, which was approved by the bankruptcy court on Aug. 21. Harbinger and Liberation had proposed an alternate plan of reorganization that Bally rejected in July.

The court also approved the investment agreement providing for Harbinger's commitment to make a $233.6 million equity investment in Bally in exchange for 100 percent of the reorganized company's new common stock. In addition, the court approved restructuring support agreements for Bally's senior noteholders and senior subordinated noteholders. It also approved the company's debtor-in-possession financing and exit credit facilities.

In the amended plan, Bally's senior subordinated noteholders would get a cash payment of $123.5 million and about $200 million in new subordinated notes for a 100 percent recovery. Under the former reorganization plan, noteholders would have received 72 cents on the dollar with a combination of new notes, new Bally common stock and rights to participate in a debt offering. Bally's shareholders, which would have received nothing in the former plan, will recover about 40 cents a share, or $16.5 million in the new plan.

Don Kornstein, interim chairman and chief restructuring officer of Bally, calls the court's approval of the amended plan “a significant accomplishment and marks the beginning of a new era for Bally Total Fitness.”

“We look forward to executing this plan in partnership with Harbinger and emerging promptly from Chapter 11 protection as a stronger company,” Kornstein says.

In a filing with the Securities and Exchange Commission, Bally announced the appointment of William G. Fanelli as senior vice president of finance and corporate development and principal financial officer. Fanelli has been with Bally since December 2006 as its senior vice president of corporate development.

The company also announced that it terminated interim executive agreements with Tatum LLC relating to the employment of Ronald G. Eidell as Bally's senior vice president and chief financial officer, and Michael Goldberg as vice president and corporate controller.

Bally also announced that Kornstein will get a $3 million bonus if the reorganization is completed, but any performance bonus for Kornstein and other Bally executives would be eliminated under a modified 2007 incentive plan approved by Bally's board, according to the filing.

Other executives in the company, including Fanelli; Marc Bassewitz, senior vice president, secretary and general counsel; and John Wildman, senior vice president, sales and interim chief marketing officer; will receive bonuses ranging from $158,375 to $375,000.

Bally's apparent quick re-birth comes under dire circumstances, Raanan says. Reorganization for any company is difficult, he adds. Seventy-five percent of companies who file for bankruptcy don't make it out of Chapter 11 protection. Plus, Bally, like other companies, is under a credit crunch.

“Money is just more difficult to get right now,” Raanan says. “It's possible that you have lenders who are willing to give Bally money, but they're not willing to do it in certain terms anymore.”

With the amended plan in order, Bally can force the hand of creditors, Raanan adds.

“It's what we call a ‘cram down.’ They can cram it down someone's throat, so to speak,” Raanan says. “I don't see a problem with [Bally's quick bankruptcy process], if all they're doing is essentially using this to force certain creditors to be reasonable.”

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