GALVESTON Texas A U.S. District Court judge has ordered Landry’s Restaurants Inc. to meet with the bondholders demanding the early repayment of $400 million in notes to see if they can work out a settlement before the court reconvenes on Monday.
The multiconcept restaurant operator has asked District Judge Samuel Kent to issue a permanent restraining order against the lenders, who demanded the repayment after Landry’s was delayed in filing a 2006 financial statement with the U.S. Securities and Exchange Commission. The company missed the deadline because of a since-concluded voluntary inquiry into its policy on stock option grants. Failure to meet the filing requirement violated the bondholders’ covenant with Landry’s, which filed the overdue 10-K last week.
Landry’s request for a temporary restraining order against the repayment request was granted several weeks ago. The company went back to court this week to seek a permanent injunction.
Landry’s chief executive Tilman Fertitta was quoted in the Galveston Daily News as testifying: “I’ve been in this business for 25 to 30 years — I have been in a lot of battles — but I have never felt so totally trapped in a corner.”
Attorneys for Landry’s, the restaurant, casino and hotel operator based in Houston, compared the bondholders to vultures and sharks, but lawyers for the bondholders said the issue was simple business.
“As you’re apt to say, Mr. Fertitta, this is not about niceness, this is about contracts,” said Kathy Patrick, attorney for bondholders Post Advisory Group and Lord Abbett Bond-Debenture Fund.
Fertitta told the court that the bondholders threatened to push the company into involuntary bankruptcy. He said that if Landry’s lost the court battle, the company would be forced to scrap $250 million in expansion plans.
He said the company has backup financing secured from a bank, but that the funding would cost Landry’s $35 million more than its current financing agreement with the bondholders. In 2004, Landry’s negotiated the $400 million in bonds at a 7.5-percent interest rate for 10 years.
Landry’s said the standby financing would cut the company’s liquidity by more than $200 million. Fertitta testified that the financing comes with a one-time $5 million fee and an interest rate of 11 to 12 percent, which amounts to at least $15 million a year in additional interest, and must be paid off in two years.
According to the Houston Chronicle, Fertitta has said that all of Landry’s major developments— including additional plans in Las Vegas, where the company owns the Golden Nugget Casino — would be put on hold if the court sided with the bondholders. The delay would be necessary to generate enough income to pay off the notes, Fertitta reportedly indicated.
"I'd just as well go on vacation, because we will be just sitting there," Fertitta was quoted as saying.
During his opening remarks to the court, Landry's attorney Anthony Buzbee referred to the bondholders as "sharks," seeking to extort money from the company.
He said bondholders asked Landry's to pay $4 million just to meet and negotiate. He said the bondholders were trying to force Landry's into an involuntary bankruptcy.
(For a follow-up story, click here)