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CRO & restructuring advisory in a franchisees sell-back to a leading fitness franchisor​

Key metrics:
  • Saved 415 jobs​
  • Mitigated $12.2M of rent liabilities​
  • Paid down $20M of secured obligations​​​
Value levers pulled:
  • CRO and restructuring advisory​
  • M&A advisory​

Picture this...

You’re a franchisee of 15 flagship, large-format group fitness locations in major metropolitan areas. As a result of the COVID-19 pandemic, you’re burning cash and incurring additional indebtedness to support operations. You need a deep diagnostic and advice on your options.​

You turn to Accordion.

We come on board and perform the diagnostic. It reveals that on a four-wall cash basis, the operations stabilized at consuming $500k per month, and landlord negotiations during the pandemic created a tenuous situation where any future payment defaults could trigger unpaid back rent of $12.2M. As for capitalization, you have approximately $12.5M of unsecured obligations and the franchisee’s parent has ~$27M of secured debt ($21.2M due to the franchisor and $5.8M to banks). The secured debt is collateralized by public shares of the franchisor that were trading at an all-time high. A complicating matter is that the franchisee’s parent held out-of-the-money options of the franchisor worth $125M if the stock doubled from it’s already all-time high. ​

​

So, we step in as Chief Restructuring Officer to: ​

  • Structure and negotiate a plan whereby you could mitigate the continued cash burn and incremental borrowing while maintaining the optionality of collecting on the $125M if the franchisor’s stock were to ultimately double. ​
  • Develop a fallback strategy while the franchisor’s stock was trading at its all-time high to sell the collateralized shares, pay secured obligations, close all locations, and use the balance of proceeds to negotiate a soft-landing with all landlords and other claimants.​
  • Share plans with the public franchisor, asking if it would alternatively be interested in working with you and the CRO to achieve the ultimate goal of preserving the $125M option, resolving all secured third-party indebtedness and mitigating any future financial obligations. ​

Your value is enhanced.

The final out-of-court resolution results in the franchisor taking over all locations and indemnifying you against all future landlord claims. This saves 415 jobs, mitigates $12.2M of contingent rent liabilities, and pays down $20M of secured obligation. Additionally, it funds the residual entity (the franchisee parent) for three years, thereby preserving the optionality of collecting the $125M for the ultimate benefit of the original investors.​

Enhanced value:
  • Saved 415 jobs​
  • Mitigated $12.2M of rent liabilities​
  • Paid down $20M of secured obligations​​​