Last week, Sbarro filed its disclosure statement and bankruptcy plan in the Southern District of New York. For reference, here is the bankruptcy docket for Sbarro:
- The agreement did not include first lien lenders. While the argument can be made they would be paid in full (with the new term loan), not including them felt like poking a hornets net with a pointy stick.
- This would be awfully high leverage for a company experiencing hefty operational difficulties. Well run QSRs were being levered 3-4x through the bank debt, adding 2 turns to this seemed excessive.
- Assuming the company can not find a bidder for its assets, the DIP and 43% of the first lien facility will be converted to a $110M exit facility
- The remaining 57% of first lien claim will be converted into equity, with first lien lenders owning the entire company
- Certain first lien lenders have agreed to also place a $18.6M new money term loan to provide the company with liquidity
- The second liens and unsecured notes will be canceled
"The Debtors expect to realize the full benefits from these initiatives and anticipated capital expenditures over their five-year business plan horizon, which forecasts animprovement in adjusted EBITDA from approximately $28 million in 2011 to more than $45 million by 2015"
- Using the average of 2011 EV/EBITDA comp of 6.5x and our $28M in 2011 EBITDA, we come up with a TEV of $182M
- The implied equity value is then $182M less the $110M of pro forma debt on the balance sheet or $72M
- First lien lenders are thus receiving 100% of the $72M + $75M of the exit term loan or $147M of value divided by their $172.7M claim for a market price of 85 cents on the dollar
- The current price of 92% * total claim of $172.7M = ~$159M of "market value"
- You then subtract the $75M exit term loan first lien lenders are receiving to determine the value of the equity award. This gets us to $84M of value. (Note: You do not add $110M of total exit debt as first lien lenders are only receiving $75M of the exit term loan - remember we are determining the value they receive relative to their claim)
- You then add $84M to the total contemplated exit debt of $110M and divide by the 2011 EBITDA forecast ($28M) for a value of 6.9x to get an implied cash flow multiple.
- CRBL: 5.7x
- BOBE: 4.8x
- RT: 5.7x
- DENN: 6.7x
- BAGL; 6.1x
- KONA: 6.5x