Granite City inks $15M debt-to-equity deal

MINNEAPOLIS Granite City Food & Brewery Ltd. said Monday it planned to convert about $15 million of debt owed to DHW Leasing LLC into 28 million shares of the restaurant company’s common stock.

The deal, set to close next month, will eliminate a majority of Granite City’s long-term debt related to the acquisition of furniture, fixtures, and equipment for the company’s 26 restaurants, and will save it about $19 million of principal and interest payments during the next five years.

The conversion price for the shares is 54 cents per share. Granite City’s stock has traded between 14 cents and $1.08 per share during the past 52 weeks. In trading on Monday, Granite City's stock price [3] climbed more than 13 percent to close at 59 cents a year.

DHW Leasing, along with other entities including Dunham Capital Management, is Granite City’s principal developer and landlord. After the transaction, it will hold majority control of Granite City’s common stock, with a 64-percent stake. The deal, however, allows Granite City to buy back a portion of the shares issued to DHW if the share price significantly appreciates during the first year after the deal’s close.

“This transaction is a pivotal event in Granite City’s history, allowing us to restructure our balance sheet and put the company in a better positionto generate positive cash flow,” said Steven J. Wagenheim, chief executive of Granite City. “Our agreement with DHW forges a unique relationship in our industry, where a developer and leaseholder has partnered with a restaurant group to move forward for the greater benefit of the concept, its shareholders and employees.”

According to terms of the deal, Granite City can repurchase DHW-owned shares at $0.001 per share if the average bid price of the company’s common stock equals or exceeds $0.714 for any period of 20 consecutive trading days. That caps the total market value of the DHW-owned shares to $20 million, the company said. For example, if the company’s share price hit $1.50 for 20 days, Granite City would have a one-time right to repurchase about 14.7 million shares for $14,700, the company explained. That stipulation allows a fair return to investors, the company said, while limiting dilution to existing shareholders.

“We at DHW leasing see this agreement as the formation of an extraordinary partnership in an environment where other businesses under similar pressures are being forced to close,” said Donald A. Dunham, Jr., chief executive of The Dunham Co. and managing member of DHW Leasing. “We view Granite City Food & Brewery as a very special concept having a broad appeal and a great regional footprint that works in markets of all sizes. By removing a significant amount of the company’s outstanding debt we can now focus on the future and the great promise this restaurant concept holds.”

For its latest quarter ended June 30, Granite City posted a net loss of $2.5 million on revenue of $22.1 million. For the same quarter a year earlier, it booked a net loss of $3.3 million on revenue of $25.1 million. Its latest-quarter same-store sales fell 13.2 percent.

Other terms of the debt-to-equity deal include rent deferrals and concessions between Granite City and Dunham landlords, as well as the expansion of the board of directors from five to seven directors to account for the new controlling stake of DHW Leasing.

Contact Sarah E. Lockyer at [email protected] [4].