NEW YORK —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Note offerings by Real Mex Restaurants, Wendy’s/Arby’s Group and El Pollo Loco, which helped the companies shore up funds to pay down debt and finance future growth, and the purchase of Church’s Chicken by private-equity firm Friedman Fleischer & Lowe together showcased mounting investor optimism. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Helping push investors toward restaurant industry deals, observers said, were increased appetites for high-yield investments, the Federal Reserve’s indication that key interest rates would remain at their current low levels for the next few months, and operator and consumer confidence that had begun to rise before receding earlier this month. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
“Though the recession drags on…the current restaurant deal landscape has improved and is showing signs of renewed life,” BB&T Capital Markets restaurant investment banking group said in its latest monthly report. “Looking at the ramp up in activity, and more deals of quality, over the past quarter provides some momentum where we can reasonably expect industry conditions to continue to inch forward in the coming months.” —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
At Cypress, Calif.-based Real Mex, the casual-dining company took advantage of the beneficial market to refinance its debt so that it could repay its senior secured notes that were due April 2010. Its long-term debt stood at $155.8 million at the end of its first quarter, and because of the weakening performance throughout all of casual dining, the company was on the watch lists of many debt-rating agencies for possible default on debt covenants. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Real Mex’s system includes about 189 restaurants under the El Torito, Chevys Fresh Mex, Acapulco Mexican Restaurants and various other brands. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Earlier this summer, the company said it planned to privately place $110 million of senior secured notes due in 2012. Real Mex actually closed on $130 million of senior secured notes on July 7. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
“There was a definite change in investor sentiment,” said Steve Tanner, chief financial officer at Real Mex Restaurants. “There was a lot of money looking for some high-yield deals, and they looked to the restaurant space.” —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Real Mex’s 14-percent notes are set to mature on Jan. 1, 2013. They were priced at 90-percent of the principal amount to yield 17.983 percent. The coupon and yield were some of the highest among recent restaurant deals and compared with interest rates of between 5 percent and 6 percent for investment-grade companies like McDonald’s, which secured those rates in its latest note offering in early January, according to research from KeyBanc Capital Markets Inc. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
The interest rate for Wendy’s/Arby’s Group’s most recent offering was set at 10 percent, and El Pollo Loco’s notes held an interest rate of 11.75 percent, KeyBanc’s research showed. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Tanner said the negative economic and restaurant industry news that emerged in late June and earlier this month, following optimistic sentiments in May and early June, changed the closing process of the company’s refinancing. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
“As we got toward the tail end of the process the market tightened again,” Tanner said. “The rate and price expectations had to be changed.” —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Debt rating agency Standard & Poor’s raised the rating of Real Mex from junk-bond status to noninvestment grade. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
“The [refinancing] extends the company’s maturity profile, which provides it with additional financial flexibility in the near term,” Standard & Poor’s credit analyst Charles Pinson-Rose said in a report. “We expect Real Mex to have adequate near-term liquidity as it cuts administrative spending and capital investment significantly, which should allow it to generate free cash flow, despite the higher interest costs of the new debt.” —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Tanner said that Real Mex’s naming of Richard “Dick” Rivera as chief executive and a new marketing plan to drive sales both played a part in helping to close the deal. For its first quarter ended March 29, Real Mex posted a net loss of $8.9 million on revenue of $128.5 million, which compared to results from the same quarter a year ago that included a net loss of $2.2 million on revenue of $137.6 million. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Latest-quarter same-store sales fell 9.1 percent. The company’s cost-cutting efforts, as well as improved commodity costs, helped it record an 8.7-percent decline in cost of sales, a 5.7-percent decline in labor expenses and a 5-percent drop in operating and occupancy expenses. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
In addition, Real Mex’s general and administrative expense was cut by 14.3 percent, according to the company’s filings. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Prior to Real Mex’s note offering, Wendy’s/Arby’s Group Inc. closed on an offering of $565 million in senior unsecured notes. The notes, due in 2016, have an interest rate of 10 percent and were priced at 97.53 percent of the face value, for gross proceeds of about $551 million, the company said. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
The Atlanta-based parent to both the Wendy’s and Arby’s quick-service chains used a portion of the proceeds to prepay about $132.5 million in debt under the company’s existing senior secured term loan, the company said. Other funds will be used for general corporate purposes, which may include “working capital, funding for key strategic growth initiatives, including new-unit development, acquisitions of other restaurant companies, repayment or refinancing of indebtedness, and the return of capital to its stockholders, including through stock repurchases and/or dividends.” —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Credit Suisse, Citigroup, and Bank of America were the joint book-running managers for the sale. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Securities analyst Larry Miller at RBC Capital Markets said in a note last month that Wendy’s would most likely use the proceeds to “either buy back shares or make an acquisition, and possibly thereafter to make reinvestments in the business, i.e., dual-branding, breakfast roll-out, international development, and a remodel.” —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
Wendy’s/Arby’s, a company formed through the merger of Wendy’s International and Arby’s former parent Triarc Cos., has a rich history of mergers and acquisitions on both the Wendy’s and Triarc side. In addition, the company’s chairman, Nelson Peltz, is a well-known activist investor and dealmaker. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
In May, El Pollo Loco Inc., which operates the 418-unit quick-service chain, closed its offering of $132.5 million in senior secured notes. The notes, due in 2012, were issued at a price equal to 98 percent of their face value and hold an interest rate of more than 11 percent. —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
In mid-June, Arcapita agreed to sell the 1,650-unit Church’s Chicken fast-food chain to San Francisco-based FF&L. Terms of the deal were not disclosed. However, reports indicated the price was in the $300 million range. Arcapita paid $390 million in 2004 when it acquired Church’s franchisor, Cajun Operating Co., from Popeyes’ parent AFC Enterprises Inc.— [email protected] —Eager investors helped a handful of restaurant companies tap the equity and bond markets in the past two months, providing a sliver of hope that the financing freeze may be thawing and investors may be warming to restaurant deals.
