Virgin Active landlords plot exit amid talks over new funds

March 02, 2021

A group of Virgin Active landlords are exploring moves to end their relationship with the health and fitness chain as it tries to thrash out a rescue deal that could involve steep haircuts for creditors.

Sky News has learnt that the owners of a handful of Virgin Active's UK sites have appointed Coffer Corporate Leisure to canvas interest from potential alternative tenants.

The five gyms include its clubs in Notting Hill and Wandsworth in London, Northampton and Nottingham - equating to around 10% of its operations in Britain.

One industry source said the landlords were preparing contingency plans in the event that they could not agree revised terms with Virgin Active, which is trying to shore up its balance sheet after being hammered by the COVID-19 pandemic.

The identities of the relevant landlords was unclear on Tuesday.

Negotiations have been taking place for weeks between the company's shareholders, who include Sir Richard Branson's Virgin Group, its lenders and landlords about a plan to invest approximately £65m into the business.

Insiders said the latest equity injection was "in the right ballpark" from the lenders' perspective, but that the structure of the deal, and potential rent cuts, had yet to be resolved.

The £65m from shareholders would comprise some new money and an extension of the brand royalty fee deferrals initially agreed after the first COVID-19 lockdown last spring.

Virgin Active's owners are led by South Africa's Brait, which holds a stake of about 80%.

The banks, which have lent £210m to Virgin Active's Europe and Asia-Pacific operations, could ultimately control the business, although that remains a remote possibility.

The company's African operations have a separate financing structure.

Virgin Active 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 2,400 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 talks.

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

Virgin Active did not respond to a request for comment about the landlord talks, while Coffer declined to comment.

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