When Town Sports International (CLUB, "Town Sports") reported earnings on October 23, I was surprised to see the shares initially rising in light of somewhat disappointing results. The answer, however, is apparent to anyone who listened to the conference call. Management discussed three possible events that make Town Sports a potential "workout:"
- Refinancing of debt: The company expects to refinance in mid-November and believes refinancing could save approximately $3 million in interest expense while removing restrictive covenants. Capitalized at 10x, this would create $30 million of value or 9.5% of market cap.
- Initiation of regular dividend: Contingent on the refinancing, the company is going to initiate a regular quarterly dividend of $0.14 to $0.16
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