Sunday, June 21, 2009

Bally Tries to Keep Going

Seven months into its second bankruptcy, the future of Bally Total Fitness is still up in the air.

Bally tried to find a buyer for the whole chain, but that was unsuccessful. It had better luck renegotiating its locations. It reduced rents for at least half of its locations and is closing about one tenth of its locations this month, using bankruptcy to get out of long-term leases. Many of the locations being closed are in Texas.

That’s a start, but Bally has been unable to work out a deal to reduce its debt load to a manageable level. Instead, a week ago it filed a plan that would see it emerge from bankruptcy under the same kind of staggering debt load it had when it emerged from bankruptcy two years ago. It is basically telling the bankruptcy court, “We know it failed before, but we want to try it again.”

Bankruptcy courts ordinarily disapprove this kind of plan, but supposing the court makes an exception in this case, there is still no more financing out there. Bally has to make a profit to keep going. And that means it has to retain most of its existing customers despite the declining economy, its own declining reputation, and negative public sentiment about the Wall Street banks who will be its new owners. Bally does not have the money to bring back the level of service it provided in the past. Instead, it has to find a way to make customers feel good about what it does now. If Bally can do that, it may be able to stay in business.