Irvine Group Puts Coco’s, Carrows on Bargaining Table

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

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

“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 declined to comment on specific plans.

But restaurant industry sources said that financially troubled Family Restaurants is negotiating with two 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 who is familiar with the negotiations. Another source said that 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 are acquired by a competitor such as Denny’s.

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 locations into Carrows and Coco’s. The two chains are considered attractive alternatives for many consumers and reportedly generate higher sales volumes than some of Denny’s under-performing restaurants.

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 that credit agreement. The latest extension expires July 31.

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, and exited on Jan. 7, 1994, with a court-approved debt restructuring.

But the company since has been hurt by stalled sales at its Chi-Chi’s restaurants, prompting Moody’s Investors Services Inc. to downgrade some of Family Restaurants’ senior notes. In November, Family Restaurants said it was exploring the sale of all or some of its properties.