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Virgin Active braces for fight over plan to ‘cram down’ furious landlords

Written by on 09/03/2021

Virgin Active faces the prospect of a court battle over plans to force landlords into a swingeing financial restructuring that will involve a controversial new legal mechanism.

Sky News has learnt that the gyms chain, which is part-owned by Sir Richard Branson‘s Virgin Group, has begun discussions about implementing a refinancing plan under Part 26A of the Companies Act.

Under the proposal, a creditor group such as Virgin Active’s landlords faces being “crammed down”, meaning they could be forced to accept the terms even if they vote against the plans.

Virgin Active gym
Image: The restructuring plan only refers to its UK sites

The restructuring plan, which will only apply to Virgin Active’s UK operations, is expected to be launched this week, according to insiders.

The Part 26A reform was introduced by the government last year in anticipation of a wave of corporate insolvencies arising from the COVID-19 pandemic.

It is designed to make restructurings easier to implement for companies facing financial difficulties.

The mechanism’s prospective use by Virgin Active is understood to be the first time it will have been used to “cram down” landlords.

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One insider said that under Virgin Active’s plans, its shareholders would inject £45m of new liquidity, alongside roughly £17m of royalty fee deferrals.

Virgin Active UK’s lending syndicate has been asked to amend and extend existing facilities, with the possibility of a larger debt package if required.

Landlords, meanwhile, are being asked for a write-off or deferral of rent arrears from UK-wide lockdowns, alongside temporary rent reductions.

A source close to Virgin Active said the company believed the restructuring plan would represent an equitable outcome for all creditors.

The shareholders’ £62m contribution accounted for more than half of the total financial contribution from all stakeholders, the source added.

Several landlords have already expressed disquiet at the haircuts they are being asked to agree to, however.

Sky News reported last month that a group of property-owners had begun exploring moves to end their relationship with the gym chain.

Landlords at a handful of Virgin Active’s UK sites have appointed Coffer Corporate Leisure to canvas interest from potential alternative tenants.

One industry source described the process as a contingency plan in the event that the landlords could not agree revised terms with Virgin Active.

Negotiations have been underway for weeks between the company’s shareholders, who are led by South Africa’s Brait Group, which holds a stake of about 80%.

Virgin Active’s operations in Africa have a separate financing structure.

The company has been grappling with the impact of the COVID-19 pandemic on its business, which trades from 240 sites in the UK, Europe, Asia, South Africa and other African countries.

In Britain, it employs about 2400 people, and operates more than 40 sites which have spent most of the last year shut.

Virgin Active has frozen membership fees during the enforced closures, further squeezing cashflow.

Last year, shareholders including Virgin Group injected about £20m into the business during the first nationwide lockdown.

Deloitte, the accountancy firm, has been advising Virgin Active on talks with landlords since last year and has had its remit extended to encompass the latest restructuring plan.

The gym chain’s lenders are being advised by Alvarez & Marsal.

Virgin Active declined to comment.

 Sky News

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