Del Taco Inc., the nation's second-largest Mexican-style fast-food chain, filed for bankruptcy protection late Monday, blaming an "onerous debt load" incurred through a buyout three years ago.
The privately held company said it remains profitable but the debt load has limited its ability to expand and keep pace with the tremendous growth of its chief rival, Taco Bell.
The firm said its Del Taco and Naugles restaurant chains will remain open for business. "Our customers will see no difference in our operations," Del Taco President and Chief Executive Kevin K. Moriarty said in a statement.
Costa Mesa-based Del Taco has $94 million in liabilities and $138 million in assets, according to its Chapter 11 filing in U.S. Bankruptcy Court in Santa Ana.
The company operates 175 Del Taco restaurants, most of them in California and other parts of the Southwest, and 30 Naugles restaurants. It has about 5,000 corporate employees and an undetermined number of employees at its 100 franchised Del Taco restaurants, a spokeswoman said.
The debt dates back to a leveraged buyout completed by a previous management team in January, 1990, said Moriarty, who is now an owner of the chain.
Moriarty said the company has the support of its lenders and hopes to move out of court protection "within a matter of months."
Moriarty would not reveal the company's annual earnings but did say that Del Taco's restaurant operations have been profitable for each of the last two fiscal years. Annual revenue is "in the $200-million range," Moriarty said, and same-store sales have risen by 45% for the last 2 1/2 years, he said.
The company faces formidable competition from Irvine-based Taco Bell, the Pepsico subsidiary that has 3,700 restaurants in 49 states and 15 foreign countries. Taco Bell reported $3.3 billion in sales for its most recent fiscal year.
While Del Taco has opened a handful of new locations in recent years, Taco Bell's restaurant total has tripled in the last five years.
Both companies offer low-cost, Mexican-style fast food and operate in a "fairly healthy segment of the fast-food market," said Robert Sandelman, a restaurant industry analyst based in Orange County. "Mexican continues to be an important part of the fast-food industry."
Del Taco took on most of its $94 million in debt during the leveraged buyout, which gave control of the company to Wayne W. Armstrong, formerly the company's chief executive and president. He purchased the company from Newport Beach restaurateur Anwar Soliman.
Armstrong subsequently stepped down voluntarily, handing control to Moriarty, the company said.