Restaurant Chain- Bankruptcy Advisory

The Situation

Our client was a restaurant holding company of three banners – Charlie Brown’s Steakhouse, Bugaboo Creek Steak House and The Office Beer Bar and Grill –with 86 locations in the Northeastern U.S. In spite of existing management’s efforts in 2010 to revitalize the brands with updated menu options, improved food quality and increased capital investment in selected locations, these were not enough to offset the lingering negative impact of the previous management team’s persistent underinvestment in the business and, in the case of two former executives, criminal activity. Guest count and revenue began to decline along with cash flow, over 20 locations had negative four-wall EBITDA in the trailing 12 months, accounts payable were stretched thin and the vendor base became increasingly restive. An investment banker was hired to sell the three banners to separate purchasers, but absent a bankruptcy filing most potential buyers decided not to take the risk of investing additional capital into the company.

Role(s)

Financial Advisory

  • P&L and cash-flow forecasting
  • Multiple scenarios for Chapter 11 or Chapter 7 bankruptcy

Bankruptcy Advisory

  • Cash-flow management, vendor negotiations and due-diligence support to the investment bankers in a multi-stage 363 sale

The Work

We were first engaged by the company to model the projected profitability of each location. We then moved to cash-flow management, which became increasingly challenging as vendors negotiated shorter payment terms and inventory was at risk. As bankruptcy quickly became the best option, we prepared for the filing and negotiated a DIP loan with the company’s senior lender. During the bankruptcy, we managed the process, controlled cash flow and provided due-diligence support to the investment bankers, who brought multiple interested parties to the table.

The Results

  • Thirty-seven stores were closed immediately before the bankruptcy filing and the debtor preserved its right to sell liquor licenses from several of these stores to generate distributions for the constituents.
  • Key employees remained with the company during the bankruptcy.
  • Most of the vendor base continued to provide service, even without critical-vendor status and the likelihood of minimal recovery of their unsecured claims.
  • Senior lender increased DIP-loan funding in order to fund negative cash flow while the assets were being marketed.
  • In 2011, all three banners were sold to financial buyers – The Office Beer Bar and Grill to Villa Enterprises, Bugaboo Creek to Capital Q and Charlie Brown’s to Praesidian Capital – with nearly all locations remaining open post-transaction.
  • Additional asset recoveries were gained for the constituents by selling multiple liquor licenses from closed stores in New Jersey and Pennsylvania.
  • Restitutions to the estate from two members of the previous management team were successfully negotiated.

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Overview

  • Restaurant
  • Bankruptcy Advisory

Engagement Team