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Buffets Inc. discloses details of Ch. 11 exit plan

In a bankruptcy court filing this week, Buffets Inc. disclosed that it would hold a confirmation hearing June 13 for its plan to emerge from Chapter 11 bankruptcy protection, which would require the company to close more units as it tries to rebuild traffic.

Buffets said lower guest traffic from the lingering economic downturn depressed sales and limited the company’s ability to meet its debt obligations. At the time of its Jan. 18 Chapter 11 filing, the Eagan, Minn.-based company had already closed 81 of its 494 company-owned restaurants in 38 states, and its lenders had converted about $245 million in senior secured debt into an equity stake.

Buffets Inc.’s plan to exit bankruptcy protection was laid out in court documents in U.S. Bankruptcy Court for the district of Delaware. The plan calls for a $50 million first-lien exit facility, of which $35 million would be drawn at the time of the exit as a term loan. The company plans to increase its capital expenditures in fiscal year 2013 to start turning around traffic at remaining units. But Buffets admitted in court documents that its restaurants still would be “exposed to vulnerabilities associated with being a mature concept.”

“The median age of the debtors’ core steak-buffet restaurants is approximately 16 years,” court documents said. “Mature units require greater expenditures for repair, maintenance, refurbishments and re-concepting. … The debtors cannot be sure that these expenditures, particularly for remodeling and refurbishing, will be successful in preserving or building guest counts.”

According to court documents, Buffets expects that it would emerge from bankruptcy with 398 company-owned units, comprising 170 Ryan’s locations, 217 Old Country Buffet or HomeTown Buffet units, and 11 Tahoe Joe’s restaurants.

“The financial projections also assume the closure of underperforming stores over time,” the company’s court filing said, “as it remains within the normal course of business to periodically determine which restaurant leases should be renewed as such leases come up for renewal or extension.”

For fiscal 2012, which ends June 27, Buffets expects restaurant sales to decline 13 percent from a year earlier to $1.03 billion, compared with $1.18 billion in fiscal 2011. The company cited the closure of 105 company-owned units during the fiscal year and lower guest counts at remaining restaurants for the drop-off.

Buffets projects restaurant sales to remain essentially flat through the next several fiscal years, growing slightly from an expected $870 million in fiscal 2013 to $875 million in fiscal 2017. This is “primarily due to no new planned store openings, for the purposes of these projections, coupled with the closure of underperforming stores at the end of their respective lease terms,” the company said in its court documents.

Buffets plans to offset losses with some revenue gains resulting from sales-driving initiatives planned for those years.

The company expects to gain between 2 percent and 3 percent on its restaurant-level margins over those five fiscal years as a result of closing underperforming stores. Annual marketing and general and administrative expenses are projected to decline by more than $5 million by fiscal 2017, but the lower unit count would cause a slight deleveraging and take those expenses up to 7.8 percent of restaurant sales, compared with current levels of 7.2 percent of sales.

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The company previously filed for Chapter 11 in 2008, when falling sales left it unable to handle its debt burden from the 2006 acquisition of the Ryan’s brand, which cost $876 million.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN

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