Family Restaurants of Irvine Puts Its Chains Up for Sale; Lenders to Wait
Lenders have agreed to give Family Restaurants Inc. until Jan. 31 to sort out its troubled finances, and the company announced Wednesday that it is actively exploring the sale of its various restaurant chains.
Word that the company has hired an investment banking firm to shop its 672 restaurants--including the Carrows, Coco’s, El Torito and Chi-Chi’s chains--is the latest chapter in the long-running effort to turn around the privately held, Irvine-based company.
The proposed agreement with lenders would give the company additional time to try and revive sales at its troubled Chi-Chi’s chain.
Industry observers have been predicting that Family Restaurants would put Chi-Chi’s on the sales block. But Chief Executive Officer Larry Ramaekers said Wednesday that he would also consider selling the company’s other divisions, which are reporting stronger revenue growth.
“These would not be distress sales, but we will consider selling anything that we have,” Ramaekers said. “We have some valuable properties, and if someone is willing to pay fair values, we will consider the offers.”
Family Restaurant’s latest moves are sure to please Wall Street and industry critics, who’ve been grumbling about the strategic direction the company has taken since successfully exiting bankruptcy court in early 1994.
“Their Mexican concepts, Chi-Chi’s and El Torito, have really been going down the drain,” one Wall Street restaurant industry analyst said recently. “Now the word is that they’re looking for opportunities to sell some of their properties.”
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Speculation about Family Restaurant’s financial health has been swirling since this past summer when the company failed to meet its financial obligations.
In August, Moody’s Investors Service Inc. linked a downgrade of some Family Restaurants senior notes to steep sales declines at Chi-Chi’s.
Also in August, Family Restaurants completed a management restructuring that included the arrival of Jack MacGregor, a Detroit-area executive who specializes in turning around financially troubled firms.
Family Restaurants generally declines to comment on its profitability. But, according to a press release issued on Wednesday, the company reported $42.6 million in earnings before taxes, interest and depreciation for the nine months ended Sept. 24, down from $75.7 million a year ago. Revenue for the period slipped to $852 million, down from $873.7 million.
Family Restaurant blamed the drops on “continuing weakness in general economic conditions and to poor sales performance in the company’s Chi-Chi’s restaurants.”
Family Restaurants also indicated that it had set aside $41.9 million in reserves during the most recent fiscal quarter “to bring the carrying value of [the Chi-Chi’s chain] to fair market value” and clear the way for a possible sale.
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As part of its bankruptcy plan in 1994, the company sold about $400 million in notes to retire old debt and to acquire the Chi-Chi’s chain from San Diego-based Foodmaker Inc., the parent company of the Jack-in-the-Box chain.
The 1994 recapitalization included substantial investments by Apollo Advisors L.P. in New York, Green Equity Investors in Los Angeles and Foodmaker.
When the recapitalization was announced, investors hoped that the combination of Chi-Chi’s and El Torito--creating the nation’s largest chain of sit-down Mexican-style restaurants--would drive revenue and profit.
But the company’s executives say that the combination hasn’t worked as planned, and that Chi-Chi’s sales never recovered from adverse publicity generated by a public interest group’s contention that Mexican-style food contains high levels of fat.
