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LA Fitness Group looks to divest 33 of 80 gyms to reduce debt

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March 10
6:18 AM 2014

As part of its strategy to cut debt, LA Fitness Group will be putting 33 of the 80 gyms in its portfolio on the auction block, Bloomberg reported.

The sports clubs operator, which owns gyms in the UK and Ireland, also said in a statement that it had inked what are known as company voluntary arrangements or CVAs with landlords to bring down the rent in some of its gyms. These efforts would help the company lower its debt by £250 million or $418 million, the report said.

In a statement, LA Fitness CEO Martin Long said, "We will create a leaner, more operationally efficient business, with a long-term, sustainable future. We will have the financial strength and operational flexibility to continue investing in facilities, equipment and technology."

In a report on the matter on The Telegraph, CVAs are viewed as a "controversial insolvency procedure" that various firms have resorted to after the financial crisis. Fitness First, the rival of LA Fitness, has also used CVAs to reduce the payments they pay for rent. The CVA process for LA Fitness will be managed by Deloitte. The fitness company wants to bring down the rent of the 33 clubs it plans to divest by 55% for six months. For the gyms it intends to keep, LA Fitness is looking to lower rent on seven clubs by 40%. Meanwhile, the rents will stay as is in the club's 31 clubs and at its Doncaster headquarters. Seven more gyms are not part of CVAs, the report said.

The debt restructuring will only happen if the creditors of LA Fitness will approve the CVAs. Their consent will allow the sports club to get new term loan facilities. The creditors, which include the Royal Bank of Scotland, will vote on the CVA on March 24. The creditors of LA Fitness took control of the gym from private equity owner MidOcean Partners which bought the spots club in 2005, The Telegraph reported.

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