Real Mex Restaurants Inc. filed for Chapter 11 reorganization Tuesday, saying the move would speed the completion of a planned turnaround and possible sale.
The Cypress, Calif.-based Real Mex — the parent of the El Torito, Acapulco and Chevys Fresh Mex chains — said it is considering a sale of assets and is “actively engaged” with representatives in early discussions of a possible purchase of the company’s 14-percent Senior Secured Notes due in 2013.
The company said it also will consider better offers in bidding under a court auction.
Real Mex officials said the action will not affect the company’s 178 restaurants and 30 franchised locations, or its food production subsidiary, Real Mex Foods.
David Goronkin, Real Mex’s recently appointed chief executive, said in a statement, “After exploring all options over the past several months, we concluded that this is the best and quickest way to complete our financial restructuring while minimizing disruption to our restaurants.
“Most of our restaurants generate meaningful cash flow, and, based on improving satisfaction scores across our core brands, guests are beginning to respond positively to the changes we’re making to improve,” he added. “We are taking this difficult but necessary step to allow us to move forward more quickly and fully implement our turnaround plan that we have discussed with our lenders over the last several months.”
EARLIER: Real Mex to restructure capital
Real Mex has struggled in recent years against economic headwinds, especially in California, where 149 of its restaurants are located.
For calendar year 2011, revenue totaled $315.5 million through Aug. 21, a decline of 3.17 percent over the same period last year, in part because of the closure of five restaurants and declining customer traffic, according to court filings.
The company said General Electric Corp. has agreed to provide $49 million in debtor-in-possession financing, which, pending court approval, will supplement ongoing operations.
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In his statement, Goronkin said he hoped ongoing discussions with bondholders will lead to a sale, which he said would be the quickest and most definitive resolution for employees, vendors, customers and creditors.
“In essence, we would seek to make the noteholders’ interest in acquiring the company’s assets the catalyst for a competitive, orderly process intended to maximize value and reduce uncertainty for all our stakeholders,” he said.
Real Mex is owned by private-equity firm Sun Capital Partners, which earlier this year provided additional liquidity for the company to avoid a possible default on debt payments. In July, Real Mex said it had reached an agreement with lenders to waive and amend debt covenants while it restructured.
Sun Capital also owns the Friendly’s chain, which is thought to be poised for a bankruptcy filing, as well as the Souper Salad and Grandy’s brands, whose parent company also filed Chapter 11 bankruptcy protection in September.
Other restaurant brands in Sun Capital’s portfolio include Boston Market, Bar Louie, Captain D’s, Fazoli’s, Garden Fresh Restaurant Corp., Restaurants Unlimited and Smokey Bones.
Goronkin, who previously was president and chief executive of Bennigan’s Franchising Co., joined Real Mex in June. He replaced Richard Rivera, who stepped down from Real Mex in April after two years.
Company officials said they planned to run full-page ads in major newspapers in California on Thursday with a message from Goronkin explaining the bankruptcy to guests and employees, as well as offering discount coupons to drive restaurant traffic.
Real Mex is the nation’s largest operator of full-service Mexican restaurants under the El Torito Restaurants, Acapulco Mexican Restaurants, Chevys Fresh Mex Restaurants and Sinigual brands, as well as the single-unit Las Brisas Restaurant in Laguna Beach, Calif., and a handful of regional concepts, including Who-Song & Larry’s, Casa Gallardo and El Paso Cantina.