Virgin Active shareholders eye £65m injection in rescue deal

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Shareholders in Virgin Active are proposing to inject £65m into the multinational gym chain as part of a rescue deal aimed at helping it to survive the latest coronavirus lockdown.

Sky News has learnt that the company's investors, who include Sir Richard Branson's Virgin Group, have tabled a plan to lenders and landlords that would see them providing the new capital in the coming months.

As part of the deal, landlords would take significant rent haircuts, while lenders would also be asked to make a meaningful financial contribution to Virgin Active's turnaround, according to people close to the process.

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

It was unclear on Thursday how Virgin Active's lenders, who are being advised by Alvarez & Marsal, would respond to the shareholder proposal.

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

Insiders say it is possible that banks which have lent £210m to Virgin Active's Europe and Asia-Pacific operations could ultimately control the business.

Its African operations have a separate financing structure.

The company has been wrestling 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.

Virgin Enterprises Limited, the UK-based entity which manages Virgin's brand licensing activities, also deferred royalty fees owed by the fitness chain understood to be valued at more than £10m annually.

The new capital would enable the chain to reopen once restrictions ease, although there is no visibility yet about when that might apply to the health and fitness industry.

In a statement issued to Sky News earlier this month, Virgin Active said it had had a strong balance sheet before the crisis, and that a refinancing soon after the pandemic hit had put it on "a sound footing".

"We are now managing the further impact from this evolving situation around the world, including second lockdowns in the UK and Italy.

"We are in discussions with all our stakeholders, and with their support we look forward to getting back to business as usual across all our territories, enabling the business to benefit from global trends towards health and wellness which are accelerating as a result of the pandemic."

Virgin Active's 2019 accounts, filed this month, included a warning from KPMG, the company's auditor, about its ability to continue as a going concern.

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 looming restructuring talks.

It is the latest in a string of Virgin Group companies which have been forced to take drastic steps to secure its future.

Virgin Atlantic Airways, the flagship in Sir Richard's empire, narrowly escaped administration last year, securing a £1.2bn package of support from suppliers, creditor and new investors.

The tycoon's airline in Australia also went through a restructuring process last year.