Restaurants Unlimited on the Bankruptcy Auction Block

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.

Company Background

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: 

  • Clinkerdagger
  • Cutters Crabhouse
  • Fondi Pizzeria
  • Henry’s Tavern
  • Kincaid’s
  • Maggie Bluffs
  • Manzana
  • Newport Seafood Grill
  • Palisade
  • Palomino
  • Portland City Grill
  • Portland Seafood Company
  • Scott’s Bar & Grill
  • Simon & Seafort’s
  • Skate’s on the Bay
  • Stanford’s
  • 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.

Other recent restaurant filings include Real-Mex, Pappa Ginos, Bertucci, Rock & Brews, Palm Restaurants, Garces Restaurant Group, Joe’s Tavern Brick House, and Taco Bueno.

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.

Critical Vendors

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:

Sysco$1.830,000
Pacific Seafood Co.$930,000
Charlies Produce Company$471,000
Microsoft Leasing$180,000
Aramark$160,000
Newport Meat$120,000
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

Additional information is available free of charge here.

Mette K.

Papa Gino’s & D’Angelo Enter Bankruptcy

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

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 MassachusettsNew HampshireRhode Island, and Connecticut. They also plan to open additional restaurants throughout New England.

Hungry? Look forward to enhanced on-line ordering capability as well.

Mette K.

Filing Alert: Samuels Jewelers Files… A “Chapter 44”?!

Texas-based retail jewelry store operator Samuels Jewelers has filed its fourth Chapter 11 bankruptcy case. This time, the beleaguered company is hoping for a going concern sale.

The First Three(!) Chapter 11 Cases

Samuels Jewlers traces its origins to a jewelry chain founded in 1891, Barry’s Jewelers, as a single store in Los Angeles. In the 1980s, Barry’s rapidly expanded into indoor shopping malls.  At the time, it was one of the fastest-growing jewelry chains in the country.  But Barry’s experienced small waves of unprofitability, filing Chapter 11 petitions in 1992 and 1997.  Following the second bankruptcy, it changed its name to Samuels Jewelers, its most recognizable brand.  The company filed its third bankruptcy in 2003, emerging with new owners. It later relocated to Texas.

Who Is Samuels Jewelers?

emerald-1137412_1920Gitanjali Gems, an Indian public company, acquired the company in 2006.  Samuels Jewelers operates over 120 stores across 23 states. Its brand names include Roger Jewelers, Andrews Jewelers, Schubach Jewelers, and Samuels Diamonds. In addition to its retail stores, the company has an e-commerce operation.

Why Has It Filed Another Bankruptcy Case?

The company cites several operational problems leading to its bankruptcy filing:

  • Increased industry competition from discount and e-commerce stores;
  • Operational deficiencies;
  • Climbing expenses;
  • A failure to keep up with customer preferences and build up of stale inventory.

The company has also been hard-hit by negative publicity associated with an investigation by the Indian Central Bureau of Investigation (CBI) into Gitanjali – Samuel Jewelers’ sole equity holder and one of its suppliers and lenders. The CBI has alleged that Gitanjali and others defrauded multiple Indian banks. Samuels’ states that some of its former directors, board members, and executives have been implicated, including its former CFO and president. While Gitanjali is no longer operating, this has disrupted Samuels Jewelers’ product supply and funding sources. And the situation has caused the company to lose standing with vendors, resulting in terminated relationships and more supply chain disruption. Moreover, according to the company new details and allegations continue to surface.

Samuels is at least the second jewelry company to file a chapter 11 case this year in the aftermath of a CBI investigation. In February, Firestar Diamond filed for Chapter 11 bankruptcy protection following news reports in India that its majority shareholder and parent had colluded with Punjab National Bank to obtain over $1 billion in unauthorized loans.

The (Hail Mary) Sale Effort

Although Samuels Jewelers says it is seeking a sale, its filings indicate it has yet entered into a purchase agreement with anyone. In fact, it has not even hired an investment banker. That is “in process,” it says. But the company states optimistically that it has received “some indication of interest” and is “hopeful” that a sale will be possible.

Meanwhile, Samuels Jewelers plans to start selling excess inventory and run store closing sales.  It has enlisted a joint venture of Gordon Brothers Retail Partners and Hilco Merchant Resources as an asset disposition consultant to help with that effort.

Because Samuels Jewelers is pursuing a potential going-concern sale, the consulting agreement includes a fiduciary out provision to allow the  company to terminate the agreement and pursue a partial or full going-concern sale.

The Committee Formation Meeting

girl-1438138_1920.jpgThe committee formation meeting is set for Thursday, August 16, 2018, at 10:00 a.m. It will be held at The Du Pont Hotel in Wilmington, DE. While you’re there, you can check out the “classy nouveau Victorian-inspired” lobby makeover by acclaimed New York architect and interior designer Campion Platt. Or stay in touch with your office with their new, top of the line Wi-Fi.  But definitely stay inside.  The weather forecast?  83 degrees, a downright tropical 65% humidity, and scattered thunderstorms.

Case Information

The case number is 18-11818, and it is pending in the Bankruptcy Court for the District of Delaware. The case has been assigned to Judge Kevin Carey. Prime Clerk is the claims and noticing agent.  For more information, you can view the company’s “first-day” global declaration here.

Mette K.

Filing Alert: Real Mex Files “Chapter 22” Bankruptcy Case

Real Mex Restaurants, a California-based company and one of the nation’s largest full-service Mexican casual dining restaurant chain operators, filed for “Chapter 22” protection on Monday, August 6, 2018.

Who Is Real Mex?

Real Mex operates three restaurant chain brands: El Torito, Chevy’s Fresh Mex, and Acapulco Mexican Restaurant.  It also operates two El Torito Grills, Singual, and Laguna Beach landmark, Las Brisas. From a high of approximately 128 restaurants in 2012, today it operates about 70 restaurants.  Almost all are in California. In addition, Real Mex has 11 franchised restaurants across the US.

The First Chapter 11 Case

The Real Mex debtors purchased the restaurant family in 2012 through a Chapter 11 bankruptcy sale. At that time, Tennenbaum and Z Capital were secured noteholders. They emerged as the new company’s majority owners. Today, the Real Mex debtors include a holding company, RM Holdco LC, and five affiliates.  

Why Has Real Mex Filed a 2nd Bankruptcy Case?

Real Mex cites to many problems leading to its bankruptcy filing:

  • Operational inefficiencies;
  • Losses and shut-down costs associated with an unprofitable centralized food purchasing and distribution service and specialty product manufacturing business;
  • Millions of dollars in costs, and lingering litigation, associated with shuttering underperforming locations;
  • Millions of dollars in costs resulting from failed expansion efforts;
  • Risk-management expenses;
  • Rising employee wages and high rent costs, particularly in California;
  • Deferred maintenance at some locations; and
  • Rising financing costs.

The Sale  Effort

Real Mex has engaged industry-expert Piper Jaffray to market the company for sale. Ultimately, the process resulted in a high bid by one of the company’s current owners, Z Capital.  The “headline” purchase price is $46.75 million. Real Mex has proposed the following sale timeline:

  • Bid deadline: Sept. 21, 2018
  • Auction: Oct. 4, 2018
  • Sale hearing: Early October 2018

Case Information

The case number is 18-11795, and it is pending in the Bankruptcy Court for the District of Delaware. The case has been assigned to Judge Mary F. Walrath. KCC is the claims and noticing agent.  If you are looking for more information, you can view the company’s “first-day” global declaration here.

Mette K.