By Jeff Montgomery

Law360 (December 18, 2020, 7:25 PM EST) -- The parent of New York Sports Clubs and its affiliates secured confirmation of a plan to liquidate remaining assets of the enterprise on Friday without breaking a sweat, following an earlier, $80 million sale of the COVID-battered main business to a top creditor.

Judge Christopher S. Sontchi approved a certified motion and order for approval submitted by attorneys for Town Sports International LLC without a hearing, after a brief flurry Thursday over assurances that state governments pursuing consumer protection complaints against the debtor could opt out of the liability releases included in the plan.

The plan approved Friday provided assurances to attorneys general and consumer officials in a number of locations that actions involving complaints over gym closings and member fees would not be released. The approved plan also assured the retention of books and records related to the issues.

TSI received approval in early November for an $80 million Chapter 11 sale of its principal assets, in a deal that will keep 61 of the chain's locations open, saving 1,400 jobs, with agreements for several more still under consideration.

Prepetition lender Tacit Capital LLC's offer to put up $80 million of its claim against the estate in lieu of cash was the only offer received for the business before a scheduled Oct. 28 auction date.

TSI, which operated 185 gyms primarily in the northeastern U.S., said in papers filed with the court that it had more than $500 million in liabilities when its Chapter 11 case opened under pressure from pandemic-related shutdowns of its businesses. It also operates the Lucille Roberts and Total Woman Gym and Spa chains and locally branded gyms in Boston, Philadelphia, Washington, D.C., and Palm Beach, Florida.

A liquidation analysis prepared by the debtor earlier estimated that a Chapter 7 liquidation sale would have generated only 17% to 26% of the funds needed to cover nearly $200 million in secured claims, and nothing for other groups, including those with case-managing administrative claims.

By contrast, the overall Chapter 11 process and liquidation was expected to cover all of the roughly $6 million in administrative claims with about $1 million for unsecured creditors.

During a hearing Thursday, attorneys for Massachusetts and the District of Columbia raised potential objections to the confirmation, saying they had delayed filing a complaint against TSI and an objection in the bankruptcy case after talks on a consumer protection "assurance of discontinuance."

That provision, however, was never submitted to the court, and was described as having been developed with former CEO Patrick Walsh, who is represented by Olshan Frome Wolosky LLP and Gordon Rees Scully Mansukhani LLP.

During the hearing Thursday, TSI's chief restructuring officer, John C. DiDonato of Huron Consulting Services LLC, said he was "unaware of any commitment by the debtors to seek such approval, nor am I aware of any drafts of pleadings shared with (or requested by) the commonwealth or the district."

DiDonato said TSI had added a procedure allowing for members to submit administrative claims via email and and committed to work with the attorneys general to address consumer complaints from Massachusetts or D.C., including the addition of language "providing that
the debtors will not seek to collect from members on account of any chargebacks."

A provision of the plan approved Friday said nonreleased liabilities would include "attorney general litigation" involving Massachusetts, New York, Washington, D.C., Pennsylvania, and Rhode Island, "asserting, among other complaints, certain alleged unlawful membership cancellations and continued collection of membership fees during prepetition COVID-related closures of gym facilities."

TSI is represented by Robert S. Brady, Sean T. Greecher and Allison S. Mielke of Young Conaway Stargatt & Taylor LLP and Nicole L. Greenblatt, Derek I. Hunter, Mark McKane and Joshua M. Altman of Kirkland & Ellis LLP.

The attorneys general are represented by Karl A. Racine, David Fisher, William Burk, Nancy L. Alper, Jimmy Rock, Benjamin Wiseman, Lindsay Marks and Naomi Claxton of the D.C. attorney general's office and Maura Healey, Shennan Kavanagh and Sarah Petrie of the Massachusetts attorney general's office.

The Office of the United States Trustee is represented by David Buchbinder.

The case is In re: TSI International LLC et al., case number 1:20-bk-12168, in the U.S. Bankruptcy Court for the District of Delaware.

--Additional reporting by Rick Archer, Brian Dowling and Vince Sullivan. Editing by Marygrace Murphy.

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