UPDATE 1-Bally Total Fitness wins OK to exit bankruptcy

* Lenders to control health club operator

* Unsecured creditors almost entirely wiped out

* Bally to emerge from Chapter 11 by early September

By Jonathan Stempel

NEW YORK, Aug 19 (Reuters) - A federal bankruptcy judge has approved Bally Total Fitness Holding Corp's reorganization plan, clearing the way for the U.S. health club operator to emerge from Chapter 11 under its lenders' control.

Judge Burton Lifland of the federal bankruptcy court in Manhattan confirmed the plan at a hearing on Wednesday, his chambers said. An outside spokesman for Bally said the Chicago-based company expects to emerge from court protection in late August or early September.

According to court papers filed last month, JPMorgan Chase & Co (JPM.N) was to get 50.5 percent of the common stock of a reorganized company, while Anchorage Advisors LLC, a New York-based hedge fund, was to get 33.7 percent. The plan would also reduce Bally's debt by at least $660 million.

Bally filed for protection from creditors last Dec. 3, its second such filing in 17 months, after tight credit markets and falling membership left it facing what it called a liquidity crisis.

The hedge fund Harbinger Capital Partners paid $233.6 million for a 100 percent equity stake in Bally when the company emerged from bankruptcy in October 2007.

Bally's latest reorganization calls for equity interests to be wiped out and for unsecured creditors to recover no more than 1.54 cents on the dollar, court papers show.

At year end, Bally operated 328 health clubs serving about 2.9 million customers. It said it had $1.38 billion of assets and $1.54 billion of debts as of Sept. 30, 2008, the end of the last calendar quarter prior to the second bankruptcy filing.

The case is In re Bally Total Fitness of Greater New York, Inc, U.S. Bankruptcy Court, Southern District of New York (Manhattan), No. 08-14818. (Reporting by Jonathan Stempel. Editing by Robert MacMillan)