NEW YORK, March 5 (Reuters) - Home fitness company BowFlex filed for Chapter 11 bankruptcy protection late Tuesday, with an agreement to sell the company for $37.5 million to Johnson Health Tech .

The Vancouver, Washington-based company benefited from a spike in demand for treadmills, stationary bikes, and weightlifting equipment during the COVID-19 pandemic in 2020, as consumers stopped gathering in gyms and exercised at home.

But the spike in demand was a double-edged sword, according to the company's court filings. BowFlex ramped up production in 2021 after finding itself unable to meet customer demand for its products during the 2020 holiday season, but then found itself with excess inventory as demand slackened and retailers canceled their advance orders.

BowFlex also suffered from increased competition in a "saturated" post-pandemic market for exercise equipment and from a rise in interest rates, according to its court filings.

BowFlex entered bankruptcy with $140 million in debt and $126 million in total assets, according to a Chapter 11 petition filed in bankruptcy court in Camden, New Jersey.

BowFlex sought to streamline its business in 2023, laying off about 15% of its employees and selling its Nautilus brand for $10.5 million. It currently has about 330 employees, and it sells BowFlex-branded equipment and Schwinn exercise bikes.

BowFlex has been seeking a buyer since 2021, and it will conduct a bankruptcy auction to see if any buyer is willing to pay more than the $37.5 million offer from Johnson Health Tech.

"We are fortified by the potential partnership with Johnson Health Tech and encouraged by the multiple parties that have indicated an interest in bidding for our Company," BowFlex CEO Jim Barr said in a statement on Wednesday.

BowFlex has lined up a bankruptcy loan that will provide the company with $9 million in new money, while also restructuring some of BowFlex's existing debt.

(Reporting by Dietrich Knauth; editing by Jonathan Oatis)

((Dietrich.Knauth@thomsonreuters.com;))