Virgin Active Lenders Prepare to Fight for Future of Gym Channel | Economic news
Virgin Active lenders are bracing for a fight over the future of one of Britain’s biggest gym chains as its owners hatch a radical plan to help it survive the pandemic.
Sky News has learned that a union of about half a dozen banks this week held a beauty parade of financial advisers to negotiate a restructuring of the company, in which Sir Richard Branson’s Virgin Group is a minority shareholder.
Sources in the city said Brait, the company founded by one of South Africa’s foremost businessmen, is due to present a formal restructuring plan to Virgin Active lenders in the coming weeks.
Brait owns just under 80% of the gym operator, with Virgin Active’s management team holding the remaining shares.
Details of Brait’s impending proposal were unclear over the weekend, as was the possibility of an insolvency process called a corporate voluntary agreement.
An insider suggested the syndicate of lenders was “prepared for a complicated process.”
They added that it was far from inconceivable that the banks that loaned £ 210million to Virgin Active’s operations in Europe and Asia-Pacific could ultimately control the company.
Its African operations have a separate funding structure.
The owners of Virgin Active will also be involved in restructuring talks as they are expected to be asked for steep reductions on future rent payments.
The company is grappling with the impact of the COVID-19 pandemic on its business, which operates from 240 locations in the UK, Europe, Asia, South Africa and other African countries.
In Britain, it employs around 2,400 people and operates more than 40 sites which have spent most of the last year shutting down.
Virgin Active has frozen membership fees during forced closings, further reducing cash flow.
Last year, shareholders including Virgin Group pumped around £ 20million into the company during the first nationwide lockdown.
Virgin Enterprises Limited, the UK-based entity that manages Virgin’s brand licensing business, has also deferred royalties owed by the fitness chain, estimated at more than £ 10million a year.
It is now seeking tens of millions of pounds in additional funding to enable it to reopen once restrictions are relaxed, although there is no visibility yet on when this might apply to the clothing industry. health and fitness.
In a statement over the weekend, Virgin Active said it had a strong balance sheet before the crisis and that a refinancing soon after the pandemic hit had put it “on solid ground.”
“We are now managing the additional impact of this evolving situation around the world, including the second lockdowns in the UK and Italy.
“We are in discussions with all our stakeholders and, with their support, we look forward to resuming our activities as usual in all our territories, allowing the company to benefit from global trends in health and wellness. be accelerating due to the pandemic. . “
The lenders’ decision to appoint advisers comes days after Britain’s largest lender, Lloyds Banking Group, began getting rid of its debt in Virgin Active.
It is believed that a sale has yet to be concluded.
Virgin Active’s 2019 accounts, filed this month, included a warning from KPMG, the company’s auditor, about its ability to continue operating.
Deloitte, the accounting firm, has been advising Virgin Active on discussions with owners since last year and has seen its tenure extended to include impending restructuring negotiations, according to a source close to the gym operator.
It is the latest in a series of companies in the Virgin group that have been forced to take drastic measures to secure its future.
Virgin Atlantic Airways, the flagship of Sir Richard’s empire, narrowly escaped administration last year, securing £ 1.2billion backing from suppliers, creditors and newcomers. investors.
The tycoon’s airline in Australia also went through a restructuring process last year.