Seattle-based Restaurants Unlimited, Inc., operator of 35 restaurants across six states, has filed for Chapter 11 bankruptcy protection in Delaware along with three affiliates. The Bankruptcy Court has scheduled a “first-day” hearing to take place today, July 9th, at 3:00 p.m. The hearing agenda is available here.
Update: The committee formation meeting has been set for July 23rd at 10:00 a.m. at 405 King Street, 2nd Floor Wilmington, Delaware. It promises to be a lovely, muggy, summer day with highs in the 90s and a chance of thunderstorms. I apologize. Seek out air conditioning.
Restaurants Unlimited, an eatery chain owned by private-equity firm Sun Capital Partners, Inc, offers both fine dining and polished casual dining in “iconic” locations under the following local brands:
- Cutters Crabhouse
- Fondi Pizzeria
- Henry’s Tavern
- Maggie Bluffs
- Newport Seafood Grill
- Portland City Grill
- Portland Seafood Company
- Scott’s Bar & Grill
- Simon & Seafort’s
- Skate’s on the Bay
- Stanley & Seafort
What Went Wrong?
The filing is the most recent in a spate of restaurant bankruptcies as consumers take advantage of falling grocery prices while restaurants grapple with increasing operating costs and market saturation. In particular, Restaurants Unlimited attributes its filing to steep minimum wage hikes across the Pacific coast—with additional hikes projected for 2020—and the national trend away from casual dining. The company’s unsuccessful, $10 million expansion into two new locations exacerbated these problems. The resulting liquidity crisis saw the company falling behind on rent obligations and vendor payments, defaulting on $40 million in secured debt, and shuttering six locations.
On the Auction Block
Restaurants Unlimited commenced its bankruptcy case to sell its business through an auction process. The company’s prepetition lenders, Drawbridge Special Opportunities Fund and NXT Capital, and their agent, Fortress Credit Co., are providing $10 million in post-petition financing to support these efforts. In fact, the company first engaged an investment banker to locate to a buyer or secure new financing in 2016. Those efforts failed, and in spring 2019, Restaurants Unlimited hired Configure Partners to run a bankruptcy sale process. Will it have any better luck this time? Although the company does not have a purchase offer in hand, it reportedly has received some initial indications of interest and is “optimistic.”
Financing: At a Price
While post-petition financing will provide the company with much needed liquidity, it comes at a steep price. The financing comes in the form of a senior secured, super-priority, multi-draw term loan with $3.25 to be drawn on an interim basis before final court approval. While there is no roll-up of prepetition debt, the facility includes a 5% closing fee, a 2% commitment fee, and various other fees, as well as a proposed lien on avoidance actions (which would otherwise be available to pay unsecured creditors) and waiver of the debtor’s surcharge rights and the “equities of the case” exception under Bankruptcy Code section 552(b).
The financing is subject to the following proposed milestones, all of which are designed to culminate in a sale by the end of September–despite the fact that the company has not yet located a buyer.
- July 10: Entry of interim DIP order
- Aug. 20: Obtain stalking horse bid
- Aug. 21: Entry of bid procedures order
- Sept. 13: Bid deadline
- Sept. 17: Auction
- Sept. 20: Entry of sale order
- Sept. 26: Sale consummation
The lien challenge deadline is the earlier of 60 days after selection of counsel to a creditor’s committee or75 days after the petition date. The investigation budget is $25,000.
Meanwhile, Restaurants Unlimited is seeking authority to pay up to $3.5 million in “critical vendor” claims consisting of amounts owed to logistics providers, PACA/PASA claimants and an estimated $1.3 million in 503(b)(9) claimants. An initial $500,000 could be paid if approved on an interim basis. Restaurants Unlimited estimates that it owes roughly $8 million to trade vendors, landlords and other unsecured creditors. Of that amount, approximately $4.1 million is owed to its 10 largest unsecured creditors:
|Pacific Seafood Co.||$930,000|
|Charlies Produce Company||$471,000|
|LA Specialty Produce Co. d/b/a SF Specialty||$120,000|
|Retail Properties of America||$104,000|
|Baseball Club of Seattle, d/b/a Seattle Mariners||$100,000|
|Attilio Merlino & Assoc., Inc., d/b/a/ Merlino Foods||$100,000|
Additional information is available free of charge here.