The Wall Street Journal-20080123-Buffets Files for Chapter 11 As Diners Curb Spending
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Buffets Files for Chapter 11 As Diners Curb Spending
Buffets Holdings Inc., one of the nation's largest restaurant chains, filed for Chapter 11 bankruptcy protection yesterday, becoming the U.S. retail sector's biggest casualty of the economic slowdown that has led consumers to cut spending.
The company's restaurants include the Country Buffet, Ryan's and Tahoe Joe's brands.
The closely held business, which employs more than 36,000 workers, reported $1.15 billion in debts and $963.6 million in assets. In documents filed with the U.S. Bankruptcy Court in Wilmington, Del., the company attributed its financial troubles mostly to "significantly depressed consumer spending."
That slump, fueled by worries the U.S. economy is on the brink of recession, has put a growing number of retail and restaurant companies at risk of default in 2008, according to Standard & Poor's. Analysts have said "casual dining" restaurants such as Buffets have been especially vulnerable as consumers' preferences have shifted to cheaper fast-food restaurants. Buffets serves 3.8 million customers a week.
Buffets was a public company until 2000, when it was acquired by a group of investment funds affiliated with the private-equity firm Caxton-Iseman Capital. Six years later, Buffets acquired Ryan's Restaurant Group Inc. in an $835 million transaction that some analysts say left it with more debt than it could handle.
The Eagan, Minn., company said it has $85 million in loans available to finance its reorganization under a $385 million credit line provided by a group of existing lenders that includes Credit Suisse Group. The remainder of that credit line is considered tapped because Buffets's lenders "rolled over" $300 million in senior bank debt into the company's post-bankruptcy loan.
Buffets said it couldn't find new sources willing to lend on "more favorable terms." In a statement, Chief Executive Mike Andrews said Buffets restaurants will remain open as the company works to reduce its debt. He said the company will conduct "a thorough review of all underperforming locations over the next several months to determine if they can meet our long-term objectives."
Buffets's largest unsecured creditors include HSBC Bank, the trustee for a group of bondholders who are owed $321 million, according to court documents. The company also owes $8.7 million to North Star Foodservice Inc., a big supplier to restaurants.
Buffets bonds have plummeted in heavy trading since the corporate credit markets ran into trouble in July. At the start of 2007, Buffets bonds were selling above 100 cents on the dollar. Yesterday the company's bonds fell to 8.5 cents on the dollar as distressed-debt investors headed for the exits.
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Matthew Monks and Paul Ziobro contributed to this article.
