Buffets, Inc. announced a restructuring agreement that it has reached with senior lenders holding 83% of its senior debt, which will recapitalize the company while eliminating virtually all of its approximately $245 million of outstanding debt. The recapitalization will provide the company with resources to invest in its proven reconcepting program, as well as other restaurant and profitability improvement initiatives.
“The important step we’re taking today is the culmination of the strategic alternatives review that our Board of Directors initiated in May 2011,” said Mike Andrews, CEO of Buffets. “Today’s announcement marks the beginning of a new era for Buffets and our many dedicated employees, as well as for our loyal guests and new customers who will enjoy our high quality food, friendly hospitality and unbeatable value through a consistently improving dining experience. With the full support of senior lenders holding 83% of our senior debt, we will recapitalize our balance sheet, eliminate a burdensome debt load and increase our cash flow, which in turn will strengthen our ability to invest in the improvement of our restaurants through our reconcepting program and other growth-oriented initiatives.”
In order to most effectively implement the restructuring, the company and all of its subsidiaries today filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in Delaware. The company also filed a proposed plan of reorganization and related disclosure statement, which have been pre-negotiated with, and enjoy the full support of, senior lenders holding 83% of the company’s senior debt. The company anticipates completing the restructuring process and exiting Chapter 11 within approximately six months.
The company has negotiated a $50 million debtor-in-possession (DIP) loan from its existing lender base, including Credit Suisse AG, Cayman Islands Branch, as agent. In addition to cash on hand and ongoing cash flow from operations, the financing is expected to provide the company with ample liquidity to meet normal operating costs during the restructuring process.
Under the proposed plan, the company will eliminate its outstanding debt of approximately $245 million, as well as annual interest payments of more than $30 million. The pre-negotiated plan of reorganization anticipates the Company’s existing lenders will receive 100 percent of the company’s new common stock upon emergence. According to court documents, Buffets is a borrower under and amended and restated first lien secured credit facility with Credit Suisse, as lender and administrative agent.
As part of the restructuring plan, the company expects to promptly close 81 underperforming restaurants, representing approximately 16% of its nearly 500 restaurants nationally. “The decision to close these underperforming restaurants, though difficult, resulted from a comprehensive, store-by-store analysis of financial performance, occupancy costs, market conditions and the long-term strategy of our reorganized restaurant portfolio,” commented Andrews. In addition to the immediate restaurant closings, the company is seeking more favorable lease arrangements with its landlords at other restaurant locations. To the extent those leases cannot be modified on acceptable terms, additional restaurant closings may be required.
Buffets, Inc.’s legal advisors are Paul, Weiss, Rifkind, Wharton & Garrison LLP and Young, Conaway, Stargatt & Taylor, LLP. The company’s financial advisor is Moelis, Inc.
Buffets, Inc., the nation’s largest steak-buffet restaurant company, currently operates 494 restaurants in 38 states.
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