Chapt. 11 Plan Would Give GE Capital Del Taco Stock : Reorganization: Largest creditor would also be able to appoint 2 of the Costa Mesa-based firm’s 3 board members.

Nearly six months after filing for bankruptcy, Del Taco Inc. has agreed to turn all of its stock over to General Electric Capital, the company’s largest creditor.

The Chapter 11 reorganization plan, which needs approval by creditors and a U.S. Bankruptcy Court judge in Santa Ana, would allow GE Capital to appoint two of the company’s three board members. The third seat would be filled by Del Taco President Kevin Moriarty, who now owns about 16% of the restaurant company’s common shares.

When Del Taco filed for bankruptcy, Moriarty described the privately held company as “profitable from operations” but unable to service an “onerous” debt load taken on during a leveraged buyout in the late 1980s. Del Taco owed $87 million to GE Capital, which owned 79% of Del Taco’s shares, when bankruptcy proceedings began March 29.

While operating under court protection from creditors, Del Taco “tightened up the operation and got rid of some incredible expense burdens from the lease side,” said Del Taco Vice President Paul Hitzelberger. “And (with the plan) we now have a reasonable debt burden.”

Most creditors are believed to support the plan, according to an attorney who is familiar with the case. However, the company is still negotiating with some creditors who have reservations about the plan.

According to bankruptcy filings, creditors other than GE Capital initially maintained that Del Taco owed them close to $100 million. But in recent filings, Del Taco suggests that claims have been reduced to about $30 million. Some claims are still being contested, according to court documents.

The Costa Mesa-based company hopes to submit the plan to creditors for a vote in the fall and exit bankruptcy court late in the year. If approved, Hitzelberger said, “we’re ready to do what we said we’re going to do, which is a major franchise growth program.”

Del Taco generated a $1-million profit, before interest and taxes, during 1992 on $124 million in revenue, according to documents filed along with the plan. Despite that profit from operations, executives realized that Del Taco “could never repay its indebtedness to GE Capital . . . without a substantial reorganization,” the documents said.

GE Capital, which at one point was owed as much as $170 million by Del Taco, eventually traded some of that debt for an equity stake in the nation’s second-largest, Mexican-style fast-food restaurant company.

The plan of reorganization would award GE Capital the remaining 21% stake in Del Taco held by Moriarty and Hitzelberger. GE Capital would also receive a $55-million note, secured by the company’s assets, its common stock, and $25 million in newly issued preferred stock.

Moriarty, who is paid $375,000 annually, will continue to operate the company, according to court documents, along with vice presidents Hitzelberger and Donald Stoops. Two other executives, Gregory L. Segall and Mark Archer, who joined the company to help it reorganize, would leave the company shortly after it exits bankruptcy.

According to the plan, Del Taco is using Bankruptcy Court protection to cut its costs by rejecting or modifying 70 restaurant leases. Del Taco, which had about 300 restaurant locations when it entered bankruptcy, now has about 285 locations. The company might reject or modify additional leases, according to court documents.