Talks Underway for Sale of 350 Carrows, Coco’s

Financially troubled Family Restaurants Inc. is in negotiations to sell about 350 of its Coco’s and Carrows eateries, possibly to the Denny’s chain, industry sources said Wednesday.

Family Restaurants, which also owns 300 Chi-Chi’s and El Torito restaurants, declined to discuss the negotiations. Denny’s also declined to comment.

Family Restaurants placed all of its restaurant holdings on the sales block late last year after defaulting on a credit agreement with its banks. The Irvine-based restaurant operator subsequently won extensions to the agreement.

Family Restaurants, formerly known as Restaurant Enterprises Group, has been struggling with a heavy debt load since a leveraged buyout by a previous management team in the 1980s. The company entered Chapter 11 proceedings in U.S. Bankruptcy Court in Santa Ana, from which it exited Jan. 7, 1994, with a court-approved debt restructuring.

“We’re in discussions with several groups, but at this point in the process, it’s too early to point to an outcome,” Family Restaurants spokeswoman Gayle DeBrosse said. Denny’s spokeswoman Karen Randall acknowledged that the Spartanburg, S.C., company wants to expand through acquisitions, but she declined to comment on specific plans.

Industry sources said Family Restaurants is negotiating with two different groups--Denny’s and an unidentified investment group--that have a strong interest in acquiring both Coco’s and Carrows.

“It seems like Denny’s is the leading contender, and it could be done in a week or two,” said one industry executive familiar with the negotiations. Another source said a sale of the two family restaurants is “only a matter of time.”

It’s uncertain whether the Coco’s and Carrows names would disappear if the chains were acquired by a competitor.

One industry executive even suggested that Denny’s, which is spending heavily to rebuild its image and sales, might elect to turn some of its own restaurants into Carrows and Coco’s, chains that reportedly generate higher sales volumes than some of Denny’s under-performing restaurants.