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Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events
1. In April 2020, the Company purchased $23,900 principal amount of debt outstanding under the 2013 Senior Credit Facility in the open market for $8,300, or 35% of face value, which resulted in a gain on extinguishment of debt of $15,500, including the write-off of related deferred financing costs and debt discount of $249 and $707, The purchased debt was transferred to TSI LLC and canceled.
2. On April 24, 2020, TSI LLC, received funding in connection with “Small Business Loans” under the federal Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief and Economic Security Act, as amended from time to time (the “PPP”). TSI LLC borrowed $2,742 original principal amount, which was funded on April 24, 2020 (the “PPP Loan”). The PPP Loan bears interest at 1% per annum and matures in 2 years from the date of disbursement of funds under the PPP Loan. Interest and principal payments under the PPP Loan will be deferred for a period of 6 months. Under certain circumstances, all or a portion of the PPP Loan may be forgiven, however, there can be no assurance that any portion of the PPP Loan will be forgiven and that TSI LLC would not be required to repay the PPP Loan in full.
The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. Forgiveness of the PPP Loan is dependent on the Company having initially qualified for the loan and adhering to applicable forgiveness criteria set forth in the PPP Loan and in the CARES Act.
3.Currently, the Company has 55 clubs open to the public and operating in: Florida, Connecticut, Washington D.C., Massachusetts, Pennsylvania and Switzerland. Furthermore, the Company plans to re-open existing clubs in its remaining markets of California, Puerto Rico, New Jersey and New York as and when state and local authorities lift closure orders applicable to gyms and health clubs. However, the recent resurgence of COVID-19 in certain regions of the U.S. has led some state and local governments to delay the implementation of plans to re-open a variety of businesses, including fitness centers, and could lead to new closures in states like Florida where we have been permitted to re-open. Moreover re-opening protocols may include restrictions on capacity and activity that make it difficult for us to attract customers and generate revenue. For example, the Governor of New York announced on August 17, 2020 that fitness centers in New York will be permitted to re-open at only 33% capacity and that they must require customers to wear masks indoors at all times. In many cases, state and local governments have not provided a clear timeline for the projected further easing of restrictions, which creates uncertainty for our customers. These developments may further hinder the Company’s ability to generate operating revenue going forward.
Due to the impact of the COVID-19 pandemic, the Company was further forced to close eight clubs permanently during the second fiscal quarter of 2020 and expects to permanently close additional clubs during the third fiscal quarter of 2020.
4. Amendment No.2 to the MSPP was adopted on July 14, 2020 in order to provide for certain accelerated matching and vesting entitlements for participants in the MSPP upon a change of control.
5. On July 15, 2020, the Company approved the appointment of Justin Lundberg to serve as a member of the Board, effectively immediately. Mr. Lundberg serves as the sole member of JSP Realty Investments, LLC (“JSP”), a company that receives annual payments from the Company of approximately $150,000 as part of a lease for real property located in Westborough, MA and for electricity credits generated by a solar array also located in Westborough. As the sole member of JSP, Mr. Lundberg is the sole beneficiary of such transactions.
6.    Our 2013 Revolving Loan Facility expired on August 14, 2020 and our 2013 Term Loan Facility expires on November 15, 2020. We are currently working with prospective lenders to refinance our debt and are pursuing additional options as described below to address our liquidity needs, however, there can be no assurance that we will be able to refinance our debt, or if we are able to refinance our debt, that such financing will be on terms favorable to us. This raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.
As a result of the Company’s strained cash position and current inability to repay all amounts outstanding under the 2013 Term Loan Facility and 2013 Revolving Loan Facility, and the challenges of COVID-19, we currently anticipate that TSI LLC, Holdings II and certain other subsidiaries of the Company that constitute the Subsidiary Guarantors (as defined in the Credit Agreement) may be forced to file a petition for relief under the Bankruptcy Code in the near future. Such a filing would subject us to the risks and uncertainties associated with bankruptcy proceedings and may place equity holders in the Company at significant risk of losing some or all of their investment in TSI LLC, Holdings II, and such subsidiaries that constitute Subsidiary Guarantors (as defined in the Credit Agreement). In addition, it is possible that the Company may be forced to file a petition for relief under the Bankruptcy Code, which may further exacerbate the risks described herein and further increase the likelihood that our equity holders would lose some or all their investment in the Company. A bankruptcy filing by such entities, or by the Company, could cause a material adverse effect on our business, financial condition, results of operations and liquidity. In the event of such bankruptcy filing, the Company expects that it will need to raise up to approximately $80 million in financing to fund the costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls.