Buffets Restaurants Files Prepackages Bankruptcy

As expected, Buffets ("the Company") filed a prepackaged plan of bankruptcy earlier today with support of 83% of its senior lenders. Buffets operates the Old Country Buffet, HomeTown Buffet, Ryan's, and Fire Mountain restaurant brands with approximately 500 restaurants across the country. For those interested in following along, you can find the bankruptcy docket here:

Buffets Bankruptcy Docket

For reference, Banc of America had a 39-41 quote on the Buffets TL this afternoon, with a few other dealers making markets slightly wider than that (GS was 37.5-42.5 earlier today).

Here is a price chart of the term loan over the past year:

In the press release announcing the restructuring agreement, the Company noted that existing lenders would be providing a $50M DIP loan and that 81 under-performing restaurants would be closed during the restructuring process.  The plan contemplates that the entire $245M of outstanding debt will be eliminated and that existing lenders will receive 100% of common stock upon emergence (subject to dilution of the Management Incentive Plan at 8%).

Buffets, Inc.'s legal advisors are Paul, Weiss, Rifkind, Wharton & Garrison LLP and Young, Conaway, Stargatt & Taylor, LLP. The Company's financial advisor is Moelis, Inc.

In his Declaration of Support for the Chapter 11 petition and first-day motions, A. Keith Wall, the company's EVP and CFO noted that this would be the second filing of the company in 5 years as the company filed in January 2008 after the disastrous acquisition of Ryan's Restaurant Group confounded by a weak economy.  At that time the company was in bankruptcy for 16 months, with a confirmation in April 2009.

What was FASCINATING about the previous bankruptcy was fact that a great majority of Buffets' leases were structured as a master lease. In bankruptcy, one can reject leases on a discreet basis. If a number of leases are rolled into a master lease, the company must reject all or none of those leases.  Buffets were unable to reject their above market leases in that bankruptcy and were burdened with a difficult cost structure on top of rising food and labor costs.  With that said, in this declaration, Wall states:
"Now, however, many of the former unitary leases have been broken up by means of numerous property sales to individual landlords. Consequently, the Debtors believe the legal impediments that restrained the Debtors' ability to reject such above-market leases in their prior chapter 11 cases have been eliminated, and the Debtors intend to file a motion to reject many such leases"
The affidavit also notes that an ad-hoc committee of prepetition lenders have worked with the company over the last few months on restructuring Buffets into a more streamlined and profitable operation.  (Editor Note: I would be curious if the new rule 2019 will apply here.)

In the Motion to Approve Use of Cash Collateral (Docket #18), terms of the DIP Credit Agreement are laid out: $20M synthetic LC facility with a $29M DIP term loan.  This is split up into three tranches: A/B/C with sizes of $30, $10, and $10M respectively.  The TLA and TLB tranches will pay L+900 with a 1.5% floor with the TLC paying 250 basis points more than that.  We do not know what the OID (upfronts) or backstop fees will be as the Company has requested an order to file fees under seal.

In addition, in that same Motion, a document is filed (5 of 6) that amends the existing credit facility that will be converted to equity. This document is signed by the following lenders:

  • Credit Suisse Loan Funding, LLC
  • Eaton Vance (across a variety of funds)
  • Boston Management and Research as various Investment Advisor
  • Rimrock (across a variety of funds)
  • Twin Haven Capital Partners
No projections were filed with the disclosure statement so its hard to get a sense for what sort of value the term loan offers at 40 cents on the dollar.  The DIP is interesting but that's probably already spoken for by one of the aforementioned lenders.

We will continue to monitor the situation as more information is released.


Ankit Gupta,  1/20/2012  

That is really interesting how they structured it as a single master lease. I have to wonder if this was done for this exact scenario from the beginning.

If so, the people behind it planned very well.


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.