Troubled gym chain Fitness First has told creditors it intends to offload 81 clubs in a company voluntary arrangement that leaves up to 750 jobs in the balance.
The CVA, first revealed by The Daily Telegraph , will help the company avoid going into administration by giving up onerous leases it can no longer afford.
CVAs have been controversial in the past because they leave landlords out of pocket. However, in the case of Fitness First, the company has offered landlords a “claw-back” on future profits if they agree to sign up to the deal.
Richard Fleming, who heads restructuring at KPMG and is supervising the CVA, said landlords could recover between 23p and 28p in the £1, compared to less than 5p in the £1 if the business went into administration.
Last week, unsecured creditors including landlords and suppliers were handed just 3p in the £1 after the collapse of video games retailer Game.
British Property Federation chief executive Liz Peace said: “Fitness First is clearly a business in some distress that requires restructuring, and landlords will consider the CVA offer on a business-by-business and a site-by-site basis.
“However, it is extremely welcome to see a 'claw-back’ arrangement included in this CVA and we hope that this further establishes a precedent that the use of these provisions should be included as a matter of course in future CVAs.”
The vote on the CVA is set for June 20, with clubs facing either closure, a sale or the possibility of being run by Fitness First on behalf of the landlords.
Mr Fleming added: “The CVA is part of a wider restructuring of the company, involving the transfer of the equity to the debt holders and the injection of a new £100m loan facility from the lenders. The wider financial restructuring is dependent on the approval of the CVA by the creditors.”
Two of Fitness First’s biggest lenders, Oaktree Capital and Marathon, have already agreed to write off more than £560m of £623m of debt in return for over 90pc of the equity in the company.
Andy Cosslett, the newly appointed Fitness First boss, said the CVA would allow the company to renegotiate leases where rent levels were “unsustainable”. He added: “Employees’ jobs will be protected as far as possible.”
The proposals also include a change of rental terms for a further 57 clubs, from quarterly rental payments to monthly payments over three years.
Fitness First is the world’s largest gym operator but has seen its profits shrink from £146m to £115m over the last five years.
It was bought for £835m in 2005 by buy-out firm BC Partners, which has seen almost all its investment wiped out.
The company has also put 24 of its Australian clubs up for sale.