(Bloomberg) — The former head of New York Sports Clubs, the gym chain that went bankrupt as the Covid-19 pandemic was spreading, is building a new fitness business that could compete with NYSC’s new owners.
The venture led by Patrick Walsh is backed by $100 million from investment firm Kennedy Lewis Investment Management, according to people with knowledge of the situation. Kennedy Lewis will become the company’s largest shareholder, receiving 51% of common stock for providing the senior secured, first-lien delayed draw term loan, the people said.
The investment firm will also appoint three directors to a five-member board, the people said, asking not to be identified because the matter isn’t public yet. The new company, which is parent of luxury brands including TMPL, Palm Beach Sports Clubs, and LIV, has 11 locations open in Florida, Puerto Rico, and New York, one of the people said.
Walsh is the former chairman and chief executive officer at the operator of New York Sports Clubs. He will serve as CEO and chairman of the new company, Empire Holdings and Investments, a subsidiary of Town Sports International Holdings Inc. The company remains separate from the bankrupt entity, Town Sports International LLC.
Representatives for the Jupiter, Florida-based company, Patrick Walsh and Kennedy Lewis declined to comment.
Town Sports International LLC sought Chapter 11 bankruptcy protection in September, unable to keep up with debt payments after it was forced to shut its gyms to help stem the spread of Covid-19. The court process allowed the company to reject or renegotiate its leases to save on rent.
Once in bankruptcy, the operator of NYSC got new owners and financial backing. A group of lenders that includes Tacit Capital agreed to exchange about $80 million in Town Sports debt for control of the fitness chain.
Gyms have been hit hard by the Covid-19 outbreak amid on-again, off-again shutdowns ordered by governments, and the reluctance of members to come because of fears they’ll be infected. Among those that have filed for bankruptcy are 24 Hour Fitness Worldwide, Gold’s Gym International and, earlier this month, In-Shape Health Clubs.
Kennedy Lewis previously contemplated providing capital to Town Sports to help the chain survive the pandemic, but backed away after Town Sports realized it would need more than initially thought, Bloomberg reported.
At one point, Town Sports was exploring a financial reprieve through a deal to buy the indoor cycling studio business of Flywheel Sports, which was owned by Kennedy Lewis. Those plans fell apart, leaving the gym chain short on cash.