Will Debt Restructuring Save Quiznos?
Denver-based Quiznos is a national chain of quick-service restaurants that offer sandwiches, soups and salads using premium ingredients. The chain grew to nearly 5,000 stores but because of competition from Subway, about 1,500 of these stores closed. It ran into debt when its current owners, CCMP Capital Advisors LLC and Consumer Capital Partners, purchased Quiznos “in a leveraged buyout at the top of the market five years ago”, reports the Wall Street Journal.
Quiznos has more than $870 million in debt. In late 2011, Avenue Capital Group, the hedge fund controlled by Marc Lasry, came to its rescue. Avenue’s Lasry is a distressed-debt investor who gains control of troubled companies by buying discounted debts which he later converts into equity. It was proposed that Avenue will invest $150 million of equity which will be used as working capital and to pay a portion of the company’s first-lien debt. The proposed deal lets Avenue Capital Group take a 70% ownership stake in the chain by converting its debt into equity.
Most of the company’s first- and second-lien creditors have so far agreed to this restructuring plan that will substantially reduce the chain’s current debt. So far, 75% of the holders of first-lien loans and 73% of its second-lien loan owners gave their okay to the plan. This will eliminate nearly a third of Quiznos’ debt. Quiznos will only file for reorganization under the U.S. Bankruptcy Code’s Chapter 11 if not all creditors agree to restructuring deals.
This out-of-court rescue plan though provides no recovery by the current owners of their investments. Chief Executive of Quiznos, Greg MacDonald, said, “Quiznos expects to operate on a business-as-usual basis during this process and we will honor all current vendor obligations while we pursue our out-of-court restructuring process. We are pleased to have reached this agreement, which will strengthen our balance sheet and allow us to strengthen our brand and customer experience.”
The embattled Quiznos sandwich chain is close to a deal to restructure its roughly $870 million debt load, said people familiar with the matter.
The deal under discussion is being driven by the company’s biggest lenders, who have a plan to take ownership of the company as long as other creditors give their consent. Should it not meet approval, Quiznos plans to file for Chapter 11 bankruptcy-protection, these people said.
Struggling amid slumping sales and a recent violation of debt terms, Quiznos has found a potential new owner in Avenue Capital Group, the hedge fund controlled by billionaire Marc Lasry, the people said.
Avenue would convert its debt to equity and invest cash in Quiznos as part of a tentative deal that would give the hedge fund more than a 70% ownership stake in the chain.
Quiznos’s current owners, private-equity firm CCMP Capital Advisors LLC and Consumer Capital Partners, an investment firm owned by Rick Schaden, aren’t likely to get any recovery on their investments, the people said.
As part of Quiznos’s tentative deal with Avenue, the hedge fund plans to write a $150 million check, with the proceeds evenly split between paying down some senior Quiznos debt and providing the chain with more working capital, the people said. Quiznos would use some of the new money for anew marketing campaign, the people said.
Creditors holding more than two-thirds of Quiznos’s senior debt and second-lien debt already support the deal, giving the chain leverage to force a restructuring plan on others during bankruptcy proceedings.
The deal requires creditors to forgive debts and push out due dates, depending on the circumstances. They could fare worse if Quiznos filed for bankruptcy-court protection. Senior lenders would likely get less of their debt paid back, and other creditors would end up owning less of Quiznos if the deal gets done in bankruptcy court, the people said. …
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