Honors Holdings, once the largest Orangetheory Fitness franchisee at 143 studios, “intends to formally wind down” its operations once it completes negotiations with its senior creditor.
That’s according to court documents filed December 13 as part of Honors Holdings’ motion to dismiss the involuntary Chapter 7 bankruptcy petition brought against it by two Orangetheory franchisees who sold studios to Honors and say they’re owed millions.
The motion, filed in the Bankruptcy Court for the Eastern District of New York, said that wind down could come through a liquidating Chapter 11 plan, a Chapter 7 filing or the transfer of assets to a third party for liquidation or distribution to creditors.
Atlanta-based Honors Holdings in early 2024 defaulted on its credit facility with lender WhiteHorse Finance, an affiliate of WhiteHorse Capital Management, which extended loans to Honors totaling more than $100 million since 2019, according to court documents. After months of “extensive negotiations and deliberations,” Honors in September entered into a Partial Strict Foreclosure Agreement with WhiteHorse to satisfy a portion of its debt, with WhiteHorse’s secured claim still “in excess of $44 million.”
Under the PSFA, WhiteHorse formed Camarillo Fitness Holdings and ultimately took control of 121 Orangetheory studios previously operated by Honors. Honors, the court filing stated, continues to run 22 studios not acquired by Camarillo, and the company is working with Camarillo, Orangetheory Fitness and various landlords “to determine the ultimate fate of those studios.”
Honors, which is described in court documents as being “the leading franchisee” of Orangetheory prior to the foreclosure agreement, “experienced a massive downswing due to the loss of membership revenues” during the COVID-19 pandemic.
“When OTF locations began reopening at the tail end of the pandemic, many members remained hesitant to reinstate their memberships and attend in-person fitness classes,” the company said in its motion to dismiss the involuntary Chapter 7 petition. “Honors has since struggled to recover from the loss of revenue caused by the pandemic.”
Brian Lennon and Philip DiSanto, attorneys at Willkie Farr & Gallagher who are listed as counsel for Honors, did not immediately respond to a request for comment. Orangetheory Fitness also did not immediately respond to a request for comment.
Honors, WhiteHorse and the franchisor were in the midst of negotiating outcomes for the remaining studios operated by Honors when, on November 20, three petitioners filed an involuntary Chapter 7 bankruptcy petition.
Core2000 and BOTF LLC claim Honors Holdings owes them $5.94 million and $2.85 million, respectively. A third petitioning creditor, a landlord entity listed as CA 531 86th Street (aka ACHS Management Corp.), claims it’s owed $4.4 million.
Robert Scot James, a partner in Core2000, is a former Orangetheory area developer who sold his four locations, along with the development rights for the state of Tennessee and 25 open studios operated by minority partners in his territory, to Honors Holdings in May 2022. Honors made the first couple of payments totaling $7 million, James told Franchise Times, but has since made no attempts to pay the remaining amount.
In May 2023 James and Core2000 sued Honors Holdings for breach of contract. A U.S. District Court in Delaware awarded the plaintiffs a final judgement in September 2023 which, according to court documents, required Honors to pay $5.9 million and another $85,000 in attorneys’ fees.
Those payments, James previously told Franchise Times, never came. “I’ve been trying to collect on the judgement for well over a year,” he said.
Like James, Anthony and Michael Bianucci are seeking payment for studios they sold to Honors Holdings in 2021. The brothers, via their company BOTF, sold 12 studios and their area representative rights in Pennsylvania. Honors, said Michael Bianucci, fulfilled two thirds of its payment obligation but in February 2023 notified BOTF it was having financial trouble. The Bianuccis are looking to collect the remaining $2.85 million.
Honors, in its motion to dismiss, said the petition was filed in bad faith and is an “inappropriate use of the bankruptcy code.” It called the petition a “tactical maneuver” to stall the efforts by WhiteHorse and noted WhiteHorse maintains first priority status above other creditors.
“An involuntary Chapter 7 liquidation forced by a few disgruntled creditors at this time will not result in a better outcome for such other creditors, all of whom are junior in priority to WhiteHorse, who is owed a secured debt far in excess of the value of Honors’ remaining assets,” court documents said.
As a result of the prepetition foreclosure, the motion said, “Honors has virtually no remaining assets with any material value. Indeed, what remains are mostly liabilities, rather than assets. And regardless of the value of the remaining assets, those assets are subject to the liens of WhiteHorse, which liens secure remaining indebtedness of more than $44 million.”
If the involuntary bankruptcy case is allowed to move forward and an order for relief entered, Honors in its motion said this would “without a doubt, be a ‘no asset’ case, with no assets for a trustee to administer, let alone to distribute to unsecured creditors.”
A hearing date is set for January 28.
