In a joint reorganization plan for Keys Fitness and Keys Backyard filed July 3, the companies have stated unsecured debt owed by the two companies is more than $23 million while assets are about $1 million less.
The plan in the Chapter 11 bankruptcy reorganization case filed in April also stated that if the company liquidated, the value of the assets would be approximately $5.3 million. Officers have laid out a three-year reorganization schedule through fiscal year 2011 to avoid liquidation.
The plan is scheduled for a hearing in the U.S. Bankruptcy Court, Northern District of Texas, in Dallas, on Aug. 1.
According to estimates in the plan, net revenue for fiscal year 2009 would be nearly $40 million, which would grow two years later under reorganization to $43.5 million. Gross margins would start at about 15.7 percent in 2009 and grow to 16.59 percent to close fiscal year 2011. In addition, the estimates in the plan show assets closing 2009 of nearly $1.6 million, which are shown to about double two years later, hitting $3.2 million.
If approved by the court, all property and assets, tangible or intangible, of the debtors and their estates shall be transferred to and vest in what is called “reorganized fitness,” the one company left which would be free of all claims, liens and encumbrances. Also, existing officers of the company would be removed and the president and CEO of “reorganized fitness” would be Miguel Nistal. Directors of the emerging company would be Steven C. Jaffe, Miguel Nistal and Charles W. Moore or any others that would be designated by JP Acquisition in coming hearings. JP is Jacobson Partners, the private equity firm that acquired all of Keys’ bank debt in early January 2008. Jacobson (www.jacobsonpartners.com) is a firm that per its website “makes control investments in underperforming companies.”
The bankruptcy cases — a forced Chapter 7 liquidation of Keys Backyard and a Chapter 11 filed nearly two months later by Keys Fitness — were combined into one joint case in late April. Click here to read that SNEWS story.
Debtors have not in recent weeks returned calls from SNEWS for comment, although in January an officer noted the company was not going away.
In the plan, background on the cases explains that the formerly $50 million fitness company in 1996 began to look for ways to reduce costs in 2003. It expanded its product line in December 2005 to include a spa business acquired from Icon Health & Fitness. By 2006, sales for the combined businesses reached $100 million. Factors noted for the decline include additional competition, decreasing profit margins, liberal return policies, and a spa business that shrank by nearly a third in the last two years. Prior court filings noted that the spa business had mounting debt that began to harm the fitness business, leading to default in late 2007 of its working capital loan obligation to Bank of America. Keys was acquired by JP in January 2008, stepping in as the companies’ secured lender.
Also pending against Keys are a number of legal cases, including one by Icon for a patent claim, while another by Icon for a patent infringement was dismissed in early June. Additional claims are for injuries and spa malfunctions. The papers note Keys Fitness has “potential claims” against Home Depot for unpaid accounts receivables and former officers and directors for “mismanagement and breach of fiduciary duties.”
The proposed plan notes that holders of claims have until the as-of-now scheduled Aug. 1 hearing to file their acceptance or rejection of the plan.