PGHC Holdings, operator of New England-based Papa Gino’s and D’Angelo, filed for chapter 11 protection on Monday. Not surprisingly, the case is pending in Delaware.
Reasons for the Bankruptcy? Same Old/Same Old
Also not surprising, the bankruptcy follows performance struggles faced by both Papa Gino’s and D’Angelo as a result of:
- Evolving consumer dining preferences;
- Increased labor costs; and
- Increasing competition among national chains.
Remember Real Mex, for example? Or Bertucci’s? Restaurant growth is continuing to slim down, folks….
In addition to operational factors, Papa Gino’s and D’Angelo have a substantial debt load that they have been unable to service. This includes: $18.5 million in first-lien, secured debt; $34.2 million in second-lien, secured debt; $39.9 million in unsecured mezzanine debt; and $9 million in unsecured trade debt, lease obligations and repair obligations. And Pappa Ginos and D’Angelo are in default under both the first and second lien agreements while the 16% senior subordinated notes matured last June. Ouch.
What Happens to Papa Gino’s and D’Angelo’s Next?
Although Papa Gino’s may be a “New England original,” its bankruptcy plans are not.
The company intends to close roughly 92 locations (47 Papa Gino’s / 45 D’Angelo). In addition, they have secured a $13.8 million in post-petition financing from an existing, secured lender to keep the company afloat. And a credit bid by the lender’s designee, a Wynnchurch Capital portfolio company, serves as the “stalking horse,” opening offer to purchase both the Papa Gino’s and D’Angelo restaurants. The stalking horse credit bid is $20 million plus assumption of certain liabilities. Ultimately, a bankruptcy auction will determine the highest and best bidder.
The sale timeline is:
- Bid procedures shall be established by December 17, 2018;
- The auction is to be held by January 28, 2019;
- A hearing on the sale shall be held and sale order entered by January 31, 2019; and
- The sale closing shall take place by January 31, 2019.
Papa Gino’s and D’Angelo have issued a press release. The proposed sale transaction, they say, will significantly strengthen their financial resources. This will allow the restaurants to remodel and modernize across Massachusetts, New Hampshire, Rhode Island, and Connecticut. They also plan to open additional restaurants throughout New England.
Hungry? Look forward to enhanced on-line ordering capability as well.