Wed 12/30/2020 10:57 AM
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Relevant Documents:
FY’19 Report
Brait Report

The U.K. arm of leisure group Virgin Active is in talks to raise new funding as the Covid-19 pandemic has hit its liquidity and cast doubts on its ability to continue as a going concern. Management disclosed in the group’s latest financial report for 2019 that it is exploring all potential sources of funds and is in regular communication with lenders. Continue reading for the EMEA Middle Market by Reorg team's update on Virgin Active's liquidity issues, and request a trial for our coverage of  many more stressed, distressed and high-yield credits in the EMEA middle market. 

After a second series of government-mandated lockdowns in the U.K. and Italy, the group’s management has warned that its liquidity, leverage and interest covenants will be breached unless a new source of funding is secured.

The revenue of Virgin Active dropped 50.1% year over year to £224.7 million in the nine months ended Sept. 30, according to an unaudited interim report the company’s owner, South African investment group Brait. The fall came as a result of the closure of clubs in all territories that the group operates in due to government-mandated lockdown restrictions. A breakdown of the closures to date is below:

To mitigate the effects of the Covid-19 pandemic, the group’s banking syndicate agreed in June to provide an additional £25 million of new debt, which was matched by a £25 million from shareholders, according to an interim report from Brait. The lenders agreed to waive leverage and interest cover covenants up to the period ending March 2021.

Documents show that the company may ask for additional banking facilities of up to £50 million, or another amount subject to agreement from the group’s lenders, which include HSBC, AIB Group, Barclays, Lloyds and Standard Chartered, according to an article by the Financial Times.

Virgin Active also made use of government support schemes (including the U.K. government’s furlough scheme), deferred rental payments and agreed staff salary reductions as it froze memberships and temporarily closed its sites during the lockdown periods.

Despite the liquidity-preserving measures taken in June, the second round of lockdowns in the U.K. and Italy beginning in October prompted the group’s management to warn of liquidity concerns. Management said in the full-year report that it expects the support of its parent group Virgin Active Investment Holdings. The directors acknowledged that there is no guarantee of this support.

Management added that the group is exposed to additional risks including future government-imposed lockdowns, a reduction in club memberships due to changes in consumer behavior such as reduced amounts of commuters to city centers, the requirement to secure future covenant waivers from lenders, and the potential reliance on shareholders to provide additional funding.

In the nine months to Sept. 30, 2020, the group reported an EBITDA loss of £8.4 million compared with a profit of £102.4 million in the previous period, according to Brait’s interim report. The group’s net debt at the end of September was £358.5 million, up from £344.3 million in March. Adjusted for the estimated effect of working capital and cost deferrals as a result of the impact of coronavirus on the business, the figure increases 82.6 million (23%) to £441.1 million, according to the Brait report.

Virgin Active had 243 health clubs at the end of 2019, with more than half in southern Africa and the remainder in the U.K., Italy and Asia.
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