Buffets Inc. said Wednesday it has filed for Chapter 11 bankruptcy protection, closed 81 restaurants and will recapitalize in an agreement with lenders that will convert debt into a controlling equity stake.
The Eagan, Minn.-based company is parent to the Old Country Buffet, HomeTown Buffet and Ryan’s steak-buffet brands. Its restaurant closures, part of a prepackaged bankruptcy filing, represented 16 percent of the company’s 494 units in 38 states. Buffets also noted it is seeking more favorable lease arrangements at other locations and if leases cannot be modified, more closings may be necessary.
Buffets Inc., which also operates and franchises restaurants under the Country Buffet, Fire Mountain and Tahoe Joe’s Famous Steakhouse brands, said the move was a culmination of a strategic review that began in May 2011, when the company retained Moelis & Company to explore options, including a possible sale .
“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,” Andrews said in a statement.
As part of the restructuring deal, the company said lenders holding 83 percent of senior debt have agreed to convert about $245 million in senior secured debt to an equity stake. The move will eliminate virtually all of the company’s outstanding debt, as well as provide resources to invest in the future of the company, said Mike Andrews, chief executive of Buffets Inc.
In addition, the company has negotiated $50 million in debtor-in-possession financing with existing lenders to provide liquidity to complete the reorganization process.
Under the pre-negotiated plan, existing lenders will receive 100 percent of the company’s new common stock upon emergence from bankruptcy, which the company estimated would take about six months.
Andrews said the decision to close restaurants, though difficult, was a result of a unit-by-unit analysis of financial performance, occupancy costs, market conditions and the long-term strategy for the restaurant portfolio.
“Similar to eliminating an unsustainable debt burden, reducing our total restaurant footprint by closing unsustainable restaurants will allow the company to focus on improving operations, enhancing our guest experience and making targeted investments that ensure the long-term viability of Buffets,” Andrews said.
“We deeply regret the impact on our dedicated associates in those restaurants that will be closed,” he added.
The move marks the second bankruptcy filing for Buffets Inc. in the past four years.
The company filed for Chapter 11 in 2008 after struggling with falling sales and a heavy debt burden from its $876 million acquisition of the Ryan’s brand in 2006. Buffets Inc. emerged from that bankruptcy in April 2009 with commitments for up to $117.5 million in new, first-lien exit financing from several lenders.
However, in court documents, the company said it continued to be adversely affected by the sluggish U.S. economy and depressed consumer spending.