PaceMaster bankruptcy becomes path to restoring private ownership

For nearly 18 months, executives at the PaceMaster brand owned by Aerobics Inc. have been working to gather a private investor group to buy back the company, restoring it to ownership headed by the family that founded the 42-year-old company.

But 11th-hour negotiations took a turn that forced Aerobics to file for Chapter 11 bankruptcy reorganization as a way to buy time as it finalized plans to take back the company from ownership fund Nautic Partners (www.nauticpartners.com).

“In today’s economic climate, working with a bank is a challenging situation at best,” CEO Tom Staub told SNEWS®. “We decided it’s in the best interest of Aerobics to replace the bank credit facility with private equity funding.”

Staub and his brother Jerry Staub, now semi-retired, will head up an investment group, Tom Staub said, that will soon be leading New Jersey-based PaceMaster (www.pacemaster.com).

“We’re taking back control,” Tom Staub said of the company that his father William, now 94, founded in 1968 based on the teachings of Ken Cooper and his book, “Aerobics,” that preached cardiovascular exercise as a message that was at the time foreign to the public.

The initial bankruptcy papers, filed May 13 at 9:20 p.m., with the U.S. Bankruptcy Court, District of New Jersey, do not yet include the financial schedules and statements that reveal a breakdown of assets and liabilities, but it does show PNC Bank in Pennsylvania as the only secured creditor. The additional statements are due by May 27, and a meeting of creditors is slated for June 9.

Meanwhile, Tom Staub told SNEWS that the bankruptcy action should be closed and over in a month.

“Within 30 days, the transaction will be over and Aerobic Inc.’s operations will be back to normal,” he said. But during this process, he also said that no retailers or consumers should see any difference, calling the bankruptcy filing, negotiations and next 30 days “transparent.”

The company issued a statement May 14 partly to offset the rumors that started to circulate faster and more furiously in the last couple of months, including a steady stream into the SNEWS offices. The statement said, in part:

Aerobics Inc. announced today that in order to address financial challenges, the company has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

The general financial condition of the fitness industry, together with Aerobics inability to renew or expand its credit facilities in a timely manner, has significantly constrained Aerobics liquidity.

As a result, the company concluded, after thorough consultation with its advisors, that its interests and the interests of its creditors, employees, customers and suppliers would be best served by reorganizing under Chapter 11 of the U.S. Bankruptcy Code.

Aerobics Inc. views this filing as a necessary and responsible step to achieve a stable and profitable future.

The recent rumors came about as retailers received notices to send their payments to the bank, not the Aerobics company — a notice that was later rescinded. The initial request was due to the changes being negotiated in the credit facility.

What led to the last-minute filing began years ago: In late 1997, Aerobics sold a majority interest to Nautic Partners and, Tom Staub said, the business grew. But in 2006, the fund re-capitalized the company, and then the economy started to fall apart — just as Aerobics was making a move to become more than a treadmill company. (Click here to see a June 10, 2005, SNEWS story, “PaceMaster readies itself to be more than a small treadmill company.”) On top of that, the company was one of the leading unsecured creditors to the tune of $1.3 million in the Fitness Holdings International bankruptcy filed in October 2008.

The Staub family then decided it was time to take back the company and slowly started to work through gathering investors and creating an equity group.

“The company will come out of this as a debt-free company,” Tom Staub said. “No debt. And we will go back to doing business as we always used to.”

He said, however, that doesn’t mean going back to being a treadmill-only company. The economy took the wind out of its sails for most of the non-treadmill business but the interest was high and remains, he said.

“We’re going to continue to be a full-line cardio supplier,” Tom Staub said. “It was just bad timing when we went into it before.”

–Therese Iknoian