CKE Buys Florida Restaurant Chain’s Debt

CKE Restaurants Inc., which recently acquired restaurant chains in Utah and Texas, on Thursday ignited speculation that it’s trying to take control of Checkers Drive-In Restaurants, a troubled Florida-based chain with 500 locations.

CKE, which owns the Carl’s Jr. fast-food restaurant chain, said it was part of a group that paid $35.1 million for $36 million in Checkers Drive-In Restaurants debt. The debt is not convertible into stock, the company said.

Analysts expect CKE to attempt a debt restructuring that would give it control over the Clearwater-based chain, which recently defaulted on its financial obligations and reported a $24.2-million net loss for the third quarter ended Sept. 9.

CKE spokeswoman Suzi Brown declined to elaborate on the Anaheim-based company’s plans for the Checkers debt. “We’re basically looking at something that would be beneficial for both companies,” Brown said. “The terms of the restructuring aren’t complete, though, so we’re not sure what that might be.”

But analysts on Thursday said a recent CKE growth surge--which was fueled by acquisitions and operating agreements--makes it likely that CKE wants to use its financial strength to take control of Checkers.

“CKE isn’t in the finance business, that’s for sure,” said Doug Christopher, an analyst with Los Angeles-based Crowell, Weedon & Associates. “They’re in the business of operating restaurants.”

CKE is best known for 661 Carl’s Jr. restaurants clustered in California and Western states. Earlier this month, CKE bolstered its available cash by selling 2.5 million shares of stock for $71.6 million.

CKE in August bought 109 Taco Bueno Mexican restaurants in Texas and Oklahoma for $42 million. And earlier it paid $24 million in cash and stock for Salt Lake City-based Summit Restaurants, which operates 124 JB’s Restaurants, Hometown Buffets and Galaxy Diners.

Analysts also note that CKE is turning a profit at 27 Rally’s Hamburger stands it now operates in Southern California. CKE took over operations of those restaurants from Giant Group Ltd., which has 474 restaurants in 19 states.

If CKE does know how to wring profits from the troubled Rally’s locations, analysts said, it might be able to revive Checkers, a chain that’s a mirror image of Rally’s.

Checkers and Rally’s both grew rapidly during the late 1980s by offering a limited menu of cheap fast food served up in restaurants with double drive-through lanes. But both chains fell upon hard times during the early 1990s when bigger chains like McDonald’s Corp. lowered their burger prices to lure customers away.

The deal announced on Thursday makes CKE’s group one of Checkers’ single largest secured creditors. “They’re the proverbial $36-million gorilla,” said one attorney familiar with the deal. “It would be sensible for both sides to conclude this in a way that’s mutually beneficial.”

The group led by CKE purchased Checkers’ debt from a group of lenders led by Wellesley, Mass.-based DDJ Capital Management LLC.

CKE said it paid $12.9 million for its share of Checkers’ debt. Other group members included in the deal are: Costa Mesa-based Fidelity National Financial Inc., which is headed by CKE Chief Executive William Foley II, which paid $3.7 million, and KCC Delaware, a wholly owned subsidiary of Giant Group Ltd., which purchased $5 million.

Unnamed “affiliated investors” paid $4.5 million and DDJ Capital retained the remainder of Checkers’ debt.

CKE shares closed up 25 cents Thursday in New York Stock Exchange trading, and Checkers closed up 34 cents at $1.19 in Nasdaq trading.