Bankruptcy Wrangling at Del Taco : Restaurants: Some creditors are upset because the fast-food chain’s largest creditor owns a majority share of the company, now in Chapter 11 proceedings.

Some of Del Taco’s unsecured creditors are worried that their financial interests will get short shrift from General Electric Capital Corp., which is both the majority owner and largest secured creditor of the now-bankrupt fast-food chain.

Creditor concerns were heightened March 30 when U.S. Bankruptcy Judge John J. Wilson assigned Del Taco’s restaurant leases to GE Capital as collateral for an $11.5-million line of credit. GE Capital, which Del Taco already owes about $80 million, now holds “substantially all” of the company’s assets as collateral, according to a court filing last week.

In addition to being Del Taco’s largest secured creditor, the Stamford, Conn.-based GE Capital in November, 1990, became the company’s largest single shareholder by converting $100 million of debt remaining from a 1990 leveraged buyout into preferred stock in Del Taco.

GE Capital holds 78.9% of Del Taco’s stock. Del Taco President Kevin Moriartyand Executive Vice President Paul Hitzelberger hold the remaining 21.1%.

Costa Mesa-based Del Taco entered voluntary Chapter 11 bankruptcy proceedings March 29. The company hopes to restructure its debt, renegotiate lower rent on some high-priced leases and position itself to expand and keep pace with Irvine-based Taco Bell, its chief rival.

But some unsecured creditors question how GE Capital can serve as both Del Taco’s major creditor and its majority shareholder, said Robert Orgel, a Los Angeles attorney who represents a Del Taco landlord in Sacramento.

“You have to question whether it’s an arms-length transaction when the majority shareholder is also the major creditor,” Orgel said. “GE Capital forced the (bankruptcy) through Del Taco’s board of directors . . . the purpose being to improve the position of GE Capital Corp. as a creditor.”

Del Taco asked that the leases on about 200 restaurants be used as collateral so Del Taco could gain access to $11.5 million in financing from GE Capital that might be needed to pay suppliers and employees while the company is reorganized. Wilson approved Del Taco’s request on an interim basis; a final determination will be made later in the year.

Del Taco previously pledged its other assets--including store equipment and fixtures, trademarks, inventory and various franchise payments--as collateral for $80 million that the company owes to GE Capital.

It’s uncertain what would happen to the leases should Del Taco subsequently fail to repay GE Capital. But some landlords, aware that Del Taco intends to renegotiate leases to cut operating costs, worry that GE Capital now enjoys substantially more leverage after the transfer.

Privately held Del Taco operates 175 Del Taco restaurants in California and five other states and about 30 Naugles restaurants. The 275-location chain also includes about 100 franchised Del Taco restaurants. The company’s heavy debt dates back to a 1990 leveraged buyout led by a previous management team that subsequently resigned.