REG to Acquire Chi-Chi’s Chain for $270 Million

Restaurant Enterprises Group, which operates the Coco’s, El Torito and Carrows chains, said Monday it has reached a definitive agreement on its previously announced plan to acquire Chi-Chi’s Inc.

San Diego-based Foodmaker Inc., which also owns the Jack in the Box chain, will sell the Chi-Chi’s chain of 237 full-service Mexican restaurants to REG for $270 million.

Foodmaker also will invest $65 million in REG as part of a complicated deal that will pump $160 million in new equity into the financially troubled restaurant operator. New York-based Apollo Advisors L.P. will invest $65 million in REG, and Los Angeles-based Green Equity Investors L.P. will infuse another $30 million.

The Chi-Chi’s acquisition and the related equity investments are part of a plan announced in July by REG to eliminate remnants of a $737-million debt accrued during a 1986 leveraged buyout. REG has paid off more than $380 million in debt but late last year stopped making interest payments on the rest.

The plan includes the sale of $425 million of new notes, completion of a $150-million revolving credit arrangement and approval of a prepackaged plan of reorganization through U.S. Bankruptcy Court.

REG, which has 560 restaurants in 23 states and the District of Columbia, has profitable operations but has been weighed down by the debt generated in the leveraged buyout. REG is now dropping money-losing locations and concentrating on its strongest restaurants and concepts.

The company hopes to complete the recapitalization by late January, spokesman Michael Casey said Monday.

The Chi-Chi’s acquisition will put REG in direct competition with Irvine-based Taco Bell, which has announced plans to start its own nationwide chain of more than 300 sit-down Mexican-style restaurants.