Ruth’s Hospitality set to raise nearly $70M

HEATHROW Fla. Ruth’s Hospitality Group Inc., the parent of Ruth’s Chris Steak House and other upscale casual-dining chains, is taking steps to pay down debt by garnering as much as $69.7 million through a stock sale to a private equity group, a stock offering to shareholders and the sale of its headquarters building.

The company, which operates or franchises about 150 restaurants, also amended its credit facility, reducing its credit line, extending its maturity date and loosening covenants.

“We believe the proposed transactions announced today [Tuesday] will enable us to make meaningful progress on our stated objectives of reducing the company’s leverage and providing us with greater financial flexibility during a time of ongoing economic uncertainty,” Ruth’s chief executive Michael O’Donnell said in a statement.

As part of its plans, Ruth’s has agreed to issue $25 million in newly created preferred stock to Bruckmann, Rosser, Sherrill & Co. Management LP, a New York private-equity group with strong ties to the restaurant industry. Shareholders must approve the plan, and a special meeting will be scheduled in the first quarter of next year.

The company also plans to raise another $35 million through a rights offering to current shareholders. The Bruckmann agreement requires the company to raise at least $25 million through this offering to stakeholders. Jefferies & Co. acted as Ruth’s financial advisor.

In addition to the set plans, Ruth’s already has sold its headquarters building in Heathrow, Fla., where it had moved to after Hurricane Katrina damaged its executive officers in Metairie, La., in 2005. The $9.7 million proceeds would go to repaying debt, said the company, which plans to relocate in the Heathrow area.

Ruth’s Hospitality is also amending its credit agreements, reducing its revolving credit line from $175 million to $130 million while extending the maturity date of the agreement by two years to 2015. The company said the new agreement eases covenants and calls for “no financial covenant testing until the end of fiscal year 2010.”

The amendment does call for higher interest rates, which are based on the company’s leverage ratio, ranging from 3.25 percent to 5 percent above the set London Interbank Offer Rate or, LIBOR, or at Ruth’s option, from 2 percent to 3.75 percent above the base rate.

Like many high-end restaurant chains, Ruth’s Hospitality has struggled of late. For the third quarter, it posted a loss of $954,000, compared with a loss of $520,000, in the same quarter a year earlier. Revenue fell 21 percent to $77.8 million. Same-store sales at corporate Ruth’s Chris Steak House locations fell 24 percent and sales at corporate Mitchell’s Fish Market units fell 12.3 percent in the quarter.

Bruckmann Roser’s current restaurant investments include: Bravo Development Inc. of Columbus, Ohio; Il Fornaio Corp. of Corte Madera, Calif.; and Logan’s Roadhouse of Nashville, Tenn. In the past, Bruckmann had invested with Au Bon Pain Inc., California Pizza Kitchen Inc., McCormick & Schmick’s Restaurant Corp., Real Mex Restaurants Inc. and Restaurants Associates Corp.

Contact Ron Ruggless at [email protected] [3].