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Item 7.01
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Regulation FD Disclosure.
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Town Sports International, LLC (“TSI
LLC”), an indirect, wholly-owned subsidiary of Town Sports International Holdings, Inc. (the “Company”), previously
entered into a $370.0 million senior secured credit facility (“2013 Senior Credit Facility”) pursuant to a credit agreement
dated November 15, 2013 (the “Credit Agreement”) by and among TSI LLC, TSI Holdings II, LLC, a wholly-owned subsidiary
of the Company (“Holdings II”), as a Guarantor, the lenders party thereto, Deutsche Bank AG, as administrative agent,
and Keybank National Association, as syndication agent. The 2013 Senior Credit Facility consists of a $325.0 million term loan
facility maturing on November 15, 2020 (“2013 Term Loan Facility”) and a $15.0 million revolving loan facility
that matured and expired on August 14, 2020 (“2013 Revolving Loan Facility”). The 2013 Term Loan Facility is due in
its entirety on November 15, 2020 and was therefore classified as a current liability on the Company’s consolidated balance
sheet as of March 31, 2020 and December 31, 2019.
The Company is currently working with
prospective lenders to refinance the 2013 Term Loan Facility in advance of its maturity date, however, there can be no assurance
that the Company will be able to refinance its debt, or if it is able to refinance its debt, that such financing will be on terms
favorable to the Company. If the Company cannot obtain refinancing, the remaining principal balance of the 2013 Term Loan
Facility of $177.3 million as of March 31, 2020 will become payable on November 15, 2020. The Company does not have sufficient
sources of cash to satisfy its obligations under the 2013 Term Loan Facility on the date of maturity.
Moreover, recent events relating to the
COVID-19 pandemic have had a material adverse effect on the Company’s results of operations, cash flows and liquidity and
further contribute to conditions that raise substantial doubt about the Company’s ability to continue as a going concern
within one year after the date the financial statements are issued. Under the terms of the 2013 Term Loan Facility, this is considered
an event of default which allows the lenders to call the debt in advance of maturity. Further, the Company is in breach of one
of its covenants under the Credit Agreement as of December 31, 2019, and this too allows the lenders to call the debt in advance
of maturity. As previously disclosed in the Company’s Current Report on Form 8-K dated August 20, 2020, as a result of the
failure to repay all amounts outstanding under the 2013 Revolving Loan Facility prior to maturity on August 14, 2020, the Company
is also in breach of the terms associated with this facility. Accordingly, the lenders under the Credit Agreement may by written
request cause the issuance of a notice of default to the Company and immediately exercise remedies under the 2013 Senior Credit
Facility, including without limitation, by declaring the principal of and any accrued interest in respect of all loans, notes,
and all obligations owing thereunder to be immediately due and payable. As of September 1, 2020, no lender pursuant to the Credit
Agreement has commenced any legal action against the Company.
As a result of the Company’s strained
cash position and current inability to repay all amounts outstanding under the 2013 Term Loan Facility and 2013 Revolving Loan
Facility, and the challenges of COVID-19, we currently anticipate that TSI LLC, Holdings II and certain other subsidiaries of the
Company that constitute the Subsidiary Guarantors (as defined in the Credit Agreement) may be forced to file a petition for relief
under the United States Bankruptcy Code (the “Bankruptcy Code”) in the near future. Such a filing would subject us
to the risks and uncertainties associated with bankruptcy proceedings and may place equity holders in the Company at significant
risk of losing some or all of their investment in TSI LLC, Holdings II, and such subsidiaries that constitute Subsidiary Guarantors
(as defined in the Credit Agreement). In addition, it is possible that the Company may be forced to file a petition for relief
under the Bankruptcy Code, which may further exacerbate the risks described herein and further increase the likelihood that our
equity holders would lose some or all their investment in the Company. A bankruptcy filing by such entities, or by the Company,
could cause a material adverse effect on our business, financial condition, results of operations and liquidity. In the event of
such bankruptcy filing, the Company expects that it will need to raise up to approximately $80 million in financing to fund the
costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls.
In accordance with General Instruction
B.2 of Form 8-K, the information in this Current Report on Form 8-K shall not be deemed “filed” for the purpose of
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933.
Forward-Looking Statements
Certain statements in this Current Report
regarding the Company’s future intentions contain “forward-looking” statements within the meaning of the Private
Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of words such as “outlook,”
“believes,” “expects,” “potential,” “continues,” “may,” “will,”
“should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,”
“estimates,” “anticipates,” “target,” “could,” or the negative version of these
words or other comparable words. Such statements are subject to various risks and uncertainties, many of which are outside our
control, including, among others, the duration and severity of the COVID-19 pandemic, actions that may be taken by governmental
authorities to contain the COVID-19 outbreak or treat its impact, the potential negative impacts of COVID-19 on the economy in
the United States and the impact of COVID-19 on the Company’s financial condition and business operations and other specific
risk factors disclosed in our prior SEC filings. We believe that all forward-looking statements are based on reasonable assumptions
when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties
or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements.
Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light
of subsequent events or developments. Actual results may differ materially from anticipated results or outcomes discussed in any
forward-looking statement.