Bally Total Fitness again files Chapter 11

Bally Total Fitness Corp. filed for Chapter 11 bankruptcy protection Wednesday for the second time in less than two years, hindered by debt and limited refinancing options amid the national credit crunch.

The Chicago-based gym company will use existing cash reserves to continue operating. Bally, which filed in U.S. Bankruptcy Court for the Southern District of New York, plans to sell itself or reorganize under Chapter 11.

Early last year, faced with more than $800 million in debt and $45 million in cash, Bally defaulted on its debt.

The company’s shares were delisted from the New York Stock Exchange for failing to meet minimum price and market capitalization requirements. At that time Bally filed Chapter 11 in a “prepackaged” bankruptcy plan that helped simplify the process under the control of Harbinger Capital Partners Master Fund I Ltd. and Harbinger Capital Partners Special Situations Fund LP, which invested $233.6 million in exchange for Bally’s common equity.

It emerged in the fall of 2007 as a private company.

Chief Executive Michael Sheehan, who was appointed in June, said Bally’s long-term debt and lack of refinancing options limited its alternatives, despite ongoing efforts to cut expenses and streamline operations.

Sheehan replaced Bally’s previous CEO, Paul Toback, who left in 2006.

Bally’s spokesman Larry Larsen declined to comment on possible gym closings or membership trends.

Founded in 1983, Bally operates 347 facilities nationwide that serve at least 3.1 million customers.