Rusty Pelican Will File for Bankruptcy : Restaurants: The upscale chain closes six of its 24 locations. Debt load is cited.
Rusty Pelican, which closed six of its 24 restaurants Sunday, said Monday that it plans to file for Chapter 11 bankruptcy protection this week, blaming expensive leases and an onerous debt load left over from a 1987 acquisition.
The upscale restaurant chain, founded in 1967 by former Newport Beach lifeguard Louis (Pete) Siracusa, would be the third Orange County restaurant company forced into bankruptcy protection in recent months. Costa Mesa-based Del Taco Inc., the Mexican-style fast-food operator, and Irvine-based Restaurant Enterprises Group, which operates the El Torito, Coco’s and Carrows chains, are seeking protection from creditors.
The restaurant companies are generating operating profits but have been unable to service financial obligations assumed during boom years in the late 1980s. Obligations assumed before California’s economy soured “have to be heavy on them because profits are off at most full-service and concept restaurants,” said Janet Lowder, a Rancho Palos Verdes-based restaurant industry analyst.
About 100 full-time and 300 part-time employees lost their jobs when the six restaurants were closed after business hours Sunday, Rusty Pelican President Scott Barnett said Monday. The privately held company closed Rusty Pelican restaurants in Brea, Irvine, Palm Desert, Woodland Hills and Portland, Ore. The Sand Dancer Broiler & Rotisserie in Newport Beach was also closed.
The chain’s 18 other restaurants in California, Arizona, Illinois, Indiana and Ohio will remain open after the bankruptcy filing later this week, the company said.
Would-be diners who showed up at closed Rusty Pelicans on Monday were handed discount coupons redeemable at other locations.
Rusty Pelican, which will report an estimated $52.3 million in 1993 revenue, “is profitable from operations,” Barnett said. However, profitability is being eroded by a heavy debt load accumulated when Rusty Pelican’s current owner, San Diego-based Green Leaf Ventures, acquired the chain for $25.6 million. The company is also saddled with “astoundingly high” leases at the six locations that were closed Sunday, Barnett said.
The company unsuccessfully attempted to renegotiate those leases. Rusty Pelican has been paying $36,000 a month at its Main Street location in Irvine, where a “normal” lease would be “somewhere in the $12,000-to-$15,000-a-month range,” Barnett said.
Rusty Pelican will “reject those leases” through court, Barnett said. The company will file in U.S. Bankruptcy Court in Santa Ana as early as today.
Rusty Pelican’s decision to terminate its most expensive leases makes sense, analyst Lowder said. “When these (leases) were signed in the 1980s, people were banking on 5% or 10% sales increases every year. But it’s hard to meet those targets in this economy.”
“Business is relatively soft for most restaurant companies operating in Southern California,” said Steven A. Rockwell, a Baltimore-based industry analyst with Alex. Brown & Sons. “Some chains that are more diversified geographically haven’t been hurt as badly as those who were mainly in Southern California.”
