Buffets files for bankruptcy again
Jan 19, 2012 (Menafn - Star Tribune - McClatchy-Tribune Information Services via COMTEX) --Buffets Inc., operator of Old Country Buffet, filed for bankruptcy protection Wednesday for the second time in four years and will close about 16 percent of its restaurants as part of another financial retooling.
Eagan-based Buffets' latest bankruptcy comes as the restaurant industry continues to suffer from a weak economy -- with chains including Perkins and Sbarro also going bankrupt over the past year.
The buffet sector has been hit particularly hard, both by increasing health concerns among consumers and competition from "casual dining" chains like Applebee's and Chili's, said analyst Dennis Lombardi of restaurant consultant WD Partners.
"The 'all-you-can-eat concept' doesn't play well for consumers who are trying to watch their weight -- it doesn't play well with obesity issues," Lombardi said.
Buffets is the nation's largest steak and buffet restaurant company, with 494 restaurants in 38 states and 22,800 employees nationwide. In addition to Old Country, it operates such chains as HomeTown, Fire Mountain and Tahoe Joe's Famous Steakhouse.
The company filed for Chapter 11 bankruptcy, which allows it to continue operating as it reorganizes. The firm has already reached an agreement to restructure its debt with major creditors. It also will soon close 81 underperforming restaurants, the locations of which weren't disclosed Wednesday.
Buffets said it has the "full support" of senior lenders who hold 83 percent of its debt for a plan that will eliminate all of the company's approximately 245 million of outstanding debt plus interest payments of about 30 million.
It anticipates being able to exit Chapter 11 within six months, and existing lenders will get 100 percent of new common stock. The Chapter 11 filing was made in U.S. Bankruptcy Court in Delaware.
The buffet and cafeteria segment of the restaurant business has been underperforming compared with the rest of the industry for a number of years, Lombardi said. In 2011, while overall industry sales were flat, sales in the buffet segment declined by high single digit percentages.
Buffets first filed for Chapter 11 in January 2008, suffering from a slowing economy and high food and energy costs. It emerged in the first quarter of 2009 with its debt load significantly reduced.
But the company "continued to be adversely affected by the sluggish U.S. economy," it said in its current bankrupty filing.
Buffets was publicly traded until 2000, when it was purchased by the New York private equity firm Caxton-Iselman, now CI Capital Partners, in a highly leveraged deal worth 643 million. Caxton lost its equity in Buffets during the first bankruptcy.
The company emerged primarily owned by creditors, bankruptcy records indicate. Buffets' largest equity owners are Credit Suisse Securities and J.P. Morgan Clearing Corp. In this bankruptcy go-round, Credit Suisse also appears to be the firm's major secured creditor.
The company said in May that it was exploring strategic options, including a possible sale. CEO Mike Andrews said in a news release that the latest trip to bankruptcy court is the culmination of that review.
Lombardi said the greater ability to alter leases in Chapter 11 makes it easier to close restaurants. That's a key factor in several other restaurant bankruptcies in the past year.
"I don't think [Buffets] will be the last Chapter 11 in the restaurant industry," Lombardi said. "I don't think we're done going through the wringer."
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