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Sun Capital regains controlling interest in Real Mex

Private equity firm Sun Capital Partners Inc. is back in the driver’s seat with a majority ownership stake in Real Mex Restaurants’ parent RM Restaurant Holding Corp., just 19 months after turning over the steering wheel to others in a debt-for-equity swap.

Cypress, Calif.-based Real Mex Restaurants is the parent of the Chevys Fresh Mex, El Torito and Acapulco chains, among other casual-dining concepts. It operates 183 locations under its various brands and, domestically, franchises 26 Chevys restaurants.

Boca Raton, Fla.-based Sun Capital Partners owns multiple foodservice brands, including Bar Louie, Boston Market, Bruegger’s Bagel Bakery, Fazoli’s, Friendly’s Ice Cream, Souplantation, Sweet Tomatoes and Restaurants Unlimited. Its holdings generated estimated 2009 U.S. foodservice revenue of $1.86 billion.

Real Mex Restaurants chief financial officer Richard P. Dutkiewicz this week confirmed that a majority of holders of the company’s 14-percent senior secured notes agreed earlier to change the indenture provisions for those instruments. The change, he said, made it possible for affiliates of Sun Capital to acquire a portion of the ownership interest in RM Restaurant Holding Corp. and Real Mex controlled by Farallon Capital Management LLC.

If the majority of note holders had not agreed to the change through a consent solicitation that ended Jun 24, Real Mex Restaurants would have been required to make a “change-of-control” offer to repurchase the 14-percent notes before majority control could have been acquired by Sun.

In acquiring what amounted to a stake of more than 20 percent in RM Restaurant Holding Corp. and Real Mex, Sun Capital affiliates Sun Cantinas and SCSF Cantinas LLC increased their combined interest in the restaurant company and its parent from just under 50 percent to about 70 percent, Dutkiewicz said.

Sun originally acquired controlling interest in RM Restaurant Holding Corp. and Real Mex Restaurants in August of 2006 in a $359 million deal with New York private equity firm Bruckmann, Rosser, Sherrill & Co. But as the looming recession began to shrink sales at casual-dining restaurants nationwide - particularly in California where Real Mex operates most of its concepts ­ -- Sun Capital's leverage in the RM Restaurant Holding Corp. and Real Mex deal began to grow.

"In 2008, we struck a compromise with the lenders allowing them to swap their debt for some of the equity in order to reduce the company's debt burden," according to a statement by Sun Capital Partners about the circumstances behind its relinquishing of control in RM Restaurant Holding Corp. and Real Mex Restaurants in November 2008.

Addressing its recent investments in RM Restaurant Holding Corp. and its operating division, Sun Capital further stated, "As [with] several other companies in the sector, Real Mex Restaurants was severely impacted by the prolonged economic downturn but has emerged today as a more stable company. We have increased our stake in the business as we continue to believe that Real Mex is an attractive business with great prospects for growth."

Following the Sun-Farallon transaction, Farallon Capital Management, through Cocina Funding, retained a 13-percent interest in RM Restaurant Holding Corp. and Real Mex, according to documents filed by Real Mex with the U.S. Securities & Exchange Commission.

Effective June 28, Farallon’s representative on the Real Mex Restaurants board of directors, Anatoly Bushler, resigned and was replaced by R. Lynn Skillen, an employee of Sun Capital Partners, Real Mex officials said.

Contact Alan Liddle at [email protected].

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