O.C.-Based Del Taco Files for Bankruptcy

Del Taco Inc., the nation’s second-largest Mexican-style fast-food chain, filed for bankruptcy protection late Monday, blaming an “onerous debt load” taken on in a buyout three years ago.

The privately held company said it remains profitable but that the debt load has limited its ability to expand and keep pace with the tremendous growth of its chief rival, Taco Bell.

The company said its Del Taco and Naugles restaurant chains will remain open for business. “Our customers will see no difference in our operations,” Kevin K. Moriarty, president and chief executive, said in a statement.

Del Taco, based in Costa Mesa, 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 to a leveraged buyout completed by a previous management team in January, 1990, said Moriarty, 45, who is now an owner of the chain.

“When you back the debt out, we’re a profitable company . . . and have been for this fiscal year and last,” Moriarty said. “We’re at the position where we need to turn the gas up under the development machine, . . . but the balance sheet is the obstacle.”

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 Del Taco’s annual earnings but did say that revenue is “in the $200-million range and that same-store sales have risen by 45% for the past 2 1/2 years.

Although he described Del Taco as well-positioned for growth during the 1990s, the “onerous debt load from the 1980s,” Moriarty said, is scaring away potential financial backers.

Last summer, the company announced plans to expand the Del Taco chain to 500 outlets by 1995, then to add more than 200 restaurants a year for the rest of the decade. Moriarty said Tuesday that, if the reorganization is successfully completed, the expansion would move ahead, but be somewhat slower.

The company faces formidable competition from Irvine-based Taco Bell, the Pepsico subsidiary that controls an estimated 70% of the California market for Mexican-style fast food. Taco Bell has 3,700 restaurants in 49 states and 15 foreign countries. It reported $3.3 billion in sales for its most recent fiscal year.

Whereas Del Taco has opened a small number of new locations in recent years, Taco Bell tripled its number of outlets in the past five years.

Both companies offer low-cost Mexican-style meals and operate in a “fairly healthy segment of the fast-food market,” said Robert Sandelman, a restaurant industry analyst based in Orange County.

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 officer and president. He purchased the company from Newport Beach restaurateur Anwar Soliman.

Armstrong subsequently stepped down voluntarily, handing control to Moriarty.

Soliman formed Del Taco/Naugles Inc. in 1988 by merging the 25-year-old Del Taco chain with the 20-year-old Naugles Restaurants. At the time, Del Taco was a privately held company, and Naugles was owned by Collins Food in Los Angeles.

Del Taco Inc.

Headquarters: Costa Mesa.

Founded: Del Taco, 1964; Naugles, 1970; the two chains merged in 1988.

Outlets: Del Taco, 275; Naugles, 30

Menu: Includes tacos, burritos, quesadillas, salads, tostadas, french fries, breakfast burritos.

Customers: About 52 million annually

Employees: About 5,000 in company-owned restaurants and corporate headquarters; undetermined number in franchised restaurants

Estimated 1992 revenue: $200 million

Source: Del Taco Inc.

Researched by DALLAS M. JACKSON / Los Angeles Times