CHICAGO — Bally Total Fitness Corp.'s plans to file for Chapter 11 bankruptcy could lead to the closing of between 100 and 150 Bally clubs, one industry analyst says.

Michael Scott Scudder of the online-based consulting firm MSS FitBiz Connection says he expects the closings of some of Bally's 350 clubs to begin this month and last throughout the summer. The restructuring could also result in the unemployment of half of Bally's 20,000 employees, Scudder says, and both lessors of Bally clubs and Bally members who have long-term memberships will also suffer if stores begin to close.

“There's a lot of people with memberships that aren't going to have a place to go,” says Scudder, who adds that other clubs could take in those members at a reduced rate.

Bally claimed $827 million of outstanding debt in March. On May 31, the company announced restructuring plans after holders of more than 80 percent of its 9.875 percent senior subordinated notes agreed in principle to swap $150 million of the notes, which will mature this year, for new subordinated notes, common equity and the right to participate in a $77.5 million rights offering. The company must get consents from other bondholders before filing for Chapter 11. Bally's restructuring will protect bondholders of the 10.5 percent senior notes due 2011, Scudder says.

The company plans to cancel its stock, and stockholders will receive nothing for their shares, the company says. Becoming private will be to Bally's advantage because it will be out from under the scrutiny of the Securities and Exchange Commission (SEC) and to a lesser extent of the Internal Revenue Service, Scudder says.

Bally also says it expects to file its 2006 annual report by the end of this month. Bally plans to complete reorganization within 60 days of the bankruptcy filing. Normal club operations will continue during the restructuring process.

A Form 8-K filing with the SEC says that Don Kornstein, the company's interim chairman who took on the added role of chief restructuring officer after Barry Elson resigned as acting CEO last month, will receive a $2.1 million incentive bonus if the restructuring plan is organized by Sept. 30. Incentive bonuses will also be awarded to two of Bally's other high-ranking officials: Marc Bassewitz for $375,000 and John Wildman for $159,375.

Kornstein told the Chicago Tribune that Bally intends to upgrade its clubs and will consider opening new clubs.

“This restructuring represents a critical juncture in changing the direction of the company's performance and outlook for the future,” Kornstein told the Tribune.

Scudder expects the company's future will be clearer in the next 12 to 18 months.

“Reorganizational bankruptcy is a delay,” he says. “It doesn't mean you can right the company. If the plan doesn't work out, eventually the company may in fact go flat-out bankrupt as opposed to bankruptcy under reorganization.”

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