Bally Total Fitness again files for Chapter 11
National News
Bally Total Fitness Corp. filed for Chapter 11 bankruptcy protection on Wednesday for the second time in less than two years, hindered by debt and limited refinancing options amid the credit crunch.
The Chicago-based gym operator will use existing cash reserves to continue operating. Bally, which again filed in the U.S. Bankruptcy Court for the Southern District of New York, plans to sell itself or reorganize under Chapter 11.
Early last year, faced with more than $800 million in debt and just $45 million in cash, Bally defaulted on its debt. The company's shares were delisted from the New York Stock Exchange for failing to meet minimum price and market capitalization requirements. Bally also was delinquent in filing its 2006 annual report because of errors in historical member data.
Bally then filed for Chapter 11 under the control of Harbinger Capital Partners Master Fund I Ltd. and Harbinger Capital Partners Special Situations Fund LP, which invested about $233.6 million in exchange for Bally's common equity. It emerged in the fall of 2007 as a private company.
Chief Executive Michael Sheehan, who replaced former CEO Paul Toback this June, said Bally's long-term debt and lack of refinancing options left limited alternatives, despite ongoing efforts to cut expenses and streamline operations.
According to CapitalIQ, Bally's has total debt of $811.3 million and cash and short-term investments of just $70.8 million. Total assets are listed as $411.4 million.
"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 today," said Sheehan in a statement.
The company hopes to emerge from bankruptcy "as promptly as possible."
Bally has retained Kramer Levin Naftalis & Frankel LLP as bankruptcy counsel and Houlihan Lokey Howard & Zukin as financial advisors.
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Workers’ Compensation Subrogation of Administrative Fees and Costs
When a worker covered by workers’ compensation makes a claim against a third party, the workers’ compensation insurance retains the right to subrogate against any recovery from that third party for all benefits paid to or on behalf of a claimant injured at work. When subrogating for more than basic medical and indemnity benefits, the Texas workers’ compensation subrogation statute provides that “the net amount recovered by a claimant in a third‑party action shall be used to reimburse the carrier for benefits, including medical benefits that have been paid for the compensable injury.” TX Labor Code § 417.002.
In fact, all 50 states provide for similar subrogation. However, none of them precisely outlines which payments or costs paid by a compensation carrier constitute “compensation” and can be recovered. The result is industry-wide confusion and an ongoing debate and argument with claimants’ attorneys over what can and can’t be included in a carrier’s lien for recovery purposes.
In addition to medical expenses, death benefits, funeral costs and/or indemnity benefits for lost wages and loss of earning capacity resulting from a compensable injury, workers’ compensation insurance carriers also expend considerable dollars for case management costs, medical bill audit fees, rehabilitation benefits, nurse case worker fees, and other similar fees. They also incur other expenses in conjunction with the handling and adjusting of workers’ compensation claims. Workers’ compensation carriers typically assert, of course, that, they are entitled to reimbursement for such expenditures when it recovers its workers’ compensation lien. Injured workers and their attorneys disagree.