Fitness First, the struggling gym operator is expected to put a company voluntary arrangement (CVA) proposal to landlords this week, which will see it giving back around 67 of its 140 outlets. It is understood that if the business returns to profitability that the landlords will see a higher return. This is a simple "profit ratchet" that has been a feature of many of our CVAs.
Fitness First has struck a deal with its lenders over its £560m debt. The lenders have signed a waiver over its quarterly interest rate bill of £18m but the shareholders will receive nothing and the company will be controlled by its lenders.
This level of debt is very high for a business with only 140 units. So why is this?
Well, there is the fact that the company has property leases in expensive locations and all their equipment is on hire. Lenders quite like to lend in the good times as there is a steady stream of cash from memberships which can service the loan repayments.