EAGAN, MN-After declaring bankruptcy, for a second time, locally based Buffets Inc. said it is going to close 81 of its 494 restaurants. However, this move is part of a $275 million restructuring plan that will reduce debt and streamline the firm, according to the company.
Buffets and all of its subsidiaries filed voluntary petitions for Chapter 11 bankruptcy, as well as a proposed plan of reorganization that has been worked out with senior lenders holding 83% of the company’s senior debt. Under the proposed plan, the firm will eliminate its outstanding debt of about $245 million, as well as annual interest payments of more than $30 million. The existing lenders will receive 100% of Buffets’ new stock.
The restructuring process should take about six months, the company said. Its restaurants include Tahoe Joe’s Famous Steakhouse, Old Country Buffet, Fire Mountain and HomeTown Buffets.
The company went through a similar bankruptcy in 2008, and vacated about 50 restaurant leases. Company officials said in a statement then that a decline in discretionary spending and rising costs and commodity prices forced that restructuring, which included a debtor-in-possession credit facility of $285 million.
Buffets has now negotiated a new $50 million debtor-in-possession loan from its existing lender base, which will provide operating costs during the restructuring process. The company has been considering strategic alternatives since May 2011, said Mike Andrews, CEO. He said the recent moves now mark the “beginning of a new era.”
Andrews said closing stores are underperforming, an analysis reached by examining store-by-store financial performance occupancy costs, market conditions and long-term strategy. “We will recapitalize our balance sheet, eliminate a burdensome debt load and increase our cash flow, which in turn will strengthen our ability to invest in the improvement of our restaurants through our re-concepting program and other growth orientated initiatives,” he said.
Investment can now be made in core restaurants, he said. The company hasn’t announced yet which locations will close. It will also seek to gain more favorable lease terms with the rest of the landlords, and Buffets said additional closings could be required if leases cannot be modified on acceptable terms. “We deeply regret the impact on our dedicated associates in those restaurants that will be closed,” Andrews said.
Paul, Weiss, Rifkind, Wharton & Garrison LLP is joined by Young, Conaway, Stargatt & Taylor LLP in Buffets’ legal representation. Moelis Inc. is serving as financial advisor.
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