The second-largest investor in Bally Total Fitness threatened last month to sue the bankrupt health club chain, alleging that a proposed restructuring deal reduces the value of the shareholders' stake to essentially zero.

 The Chapter 11 restructuring plan due to be filed this month would benefit the owners of $300 million in Bally corporate bonds. The deal would cut principal in half and give the bondholders equity in a newly private company.


Current Bally stockholders would get nothing in the deal, and their shares would become worthless.


"We think it's blatantly unfair," Emanuel Pearlman, the chief executive of Liberation Investment Group, whose hedge fund holds 11 percent of Bally's stock, told Crain's Chicago Business. "We expect to fight as far as we can to prevent it from happening."

Another hedge fund, Pardus Capital Management, is the largest Bally shareholder, with a 14.8 percent stake. Crain's reported that bondholders Anschutz Investment, Goldman Sachs and Tennenbaum Capital Partners have agreed to the bankruptcy plan, in which they would gain equity in the company.


Meanwhile, a number of health club chains are still seen as potential buyers of at least a portion of Bally's 375-unit empire. These include 24 Hour Fitness, Crunch, Town Sports International, Lifetime Fitness, Planet Fitness and XSport Fitness.


24 Hour Fitness, which based in San Ramon, Calif., and is making a push to expand into the eastern United States, might hold particular interest in acquiring Bally clubs, analysts say.