24/7 Fitness files for Chapter 11

The owner of regional chain Lehigh Valley Racquet and 24-7 Fitness Clubs has filed for bankruptcy protection in an attempt to save the company from a crushing debt load that has dogged the company for more than a year.

The corporation that owns the three facilities filed for Chapter 11 bankruptcy protection on Monday, citing an “unmanageable interest rate” on the company’s roughly $8 million mortgage.

“The interest rate is too much to handle and we want to get a more reasonable rate,” said John F. Brinson, owner and CEO of Lehigh Valley Racquet & 24-7 Fitness Clubs.

Monday’s filing to restructure debt is Brinson’s latest attempt to save a business that he started in 1979. It is also highlights changes in the competitive health club industry, as members increasingly shop for low-cost gyms.

Brinson said his business suffered through the Great Recession, and despite a recent uptick in memberships, he has not been able to make mortgage payments.

In 2010, Brinson closed the 24/7 Fitness Clubs’ location in downtown Allentown, which was the chain’s least profitable facility. The chain also cut monthly membership fees to an average of $40, down from $46 in 2008, to appeal to cost-conscious consumers, Brinson added.

The Chapter 11 filing comes at a time when industry experts say consumers are shifting memberships to a growing number of no-frills and low-cost gyms.

There are 24-7 Fitness Clubs in Bethlehem, Trexlertown and South Whitehall Township. Brinson still owns the downtown Allentown location, which is listed for sale at $1.25 million, according to the real estate listing.

In an email to members Wednesday, Brinson said the facilities would not close and the Chapter 11 filing will not have an impact on the day-to-day operations. He noted the chain has increased memberships to 9,800 “only 300 off our all-time high in 2007, before the collapse of the housing bubble.”

“There’s no way we will cease operations because the banks wouldn’t allow it,” Brinson said in an interview Wednesday. “If they ceased, the value of the clubs would be nothing.”

In 2007, Brinson borrowed $8 million from Nova Bank in Philadelphia. He said he used $1.5 million to improve his clubs and the rest was to refinance debt.

He later defaulted on the loan and in August 2010 acknowledged owing Nova Bank $7.9 million, according to Lehigh County court documents.

The weak real estate market has magnified problems for businesses that took loans against real estate. Declining property values and tougher credit standards have made it difficult for businesses to refinance loans if they don’t have sufficient equity in their land.

Brinson said he has been making payments to the bank every month, but not the full amount due. He said he hopes the bankruptcy filing convinces his creditors to lower his payments so he can keep the properties and keep operating the businesses. The alternative would be for his secured lenders to foreclose on his properties to recover their losses.

“We’re asking them to relent,” Brinson said.

There were 1,208 business bankruptcy filings in Pennsylvania in 2011, down 14 percent from the previous year, according to the American Bankruptcy Institute, which tracks bankruptcies nationally.

Gyms and fitness clubs in the United States are a growth industry that generates $25 billion a year in revenue, according to a February report by IBIS World, a Los Angeles research company. But the market is changing as health-conscious consumers look for basic, low-cost gyms to meet their fitness needs, according to the report.

The chain Planet Fitness has picked up market share by offering monthly memberships between $10 and $20, the report states, which has put pressure on other gyms with higher costs.

Locally, Planet Fitness opened locations in east Allentown and South Whitehall Township. Other no-frills chains like Snap Fitness have opened in the region, and existing fitness centers like Golds Gym are touting cheap rates.

“People are health conscious, but they are also strapped for cash,” said Mary Nanfelt, a lead industry analyst with IBIS World who wrote the gym and fitness center report. “They may just want a treadmill and some weights and they don’t need all the extras.”