Perkins & Marie Callender’s Inc., the Memphis,Tenn.-based owner and franchiser of 596 Perkins and Marie Callender’s restaurants, filed for Chapter 11 bankruptcy protection and has plans to close 65 restaurants, 58 of which were closed this weekend.
The company plans to restructure through a shift of majority control to Wayzata Investment Partners LLC, a private-equity fund based in Minnesota, and holder of Perkins’ debt. The restaurant company previously was owned by New York-based private equity firm Castle Harlan Inc., which purchased Perkins for about $245 million in 2005.
The Perkins and Marie Callender’s brands, both family-dining chains, were severely affected by “excessive leverage and poor sales results,” according to court documents filed in U.S. Bankruptcy Court in Wilmington, Del.
The poor economic climate was listed as the primary factor for the reorganization, particularly because both chains have a large number of restaurants in Florida and California, where unemployment and home foreclosure rates remain high.
In April, the company owned and operated 160 Perkins locations in 13 states, and franchised another 314 in the United States and Canada. The company also owned 85 Marie Callender’s restaurants in nine states and franchised 37 locations in the United States and Mexico.
As of October 2010, Perkins listed assets of $290 million, with debts totaling $440.8 million, according to court documents. At the end of 2010, the company reported revenue of $507 million.
In April the company was unable to make a scheduled payment of $9.5 million on senior notes and fell into default.
Perkins & Marie Callender’s entered into a restructuring agreement that requires a plan of reorganization be filed by July 14 and the restructuring completed no later than Oct. 21, the company said. Perkins also cut a deal with Wells Fargo Capital Finance for $21 million debtor-in-possession funding to continue operating during the restructuring, the company said.
“The company believes its current and anticipated cash resources will be suitable to pay its expenses and maintain its business operations during the restructuring. Vendors and suppliers should see no change in normal business operations,” the company statement said.
Jay Trungale, Perkins’ chief executive, said the “initial round of store closing was arrived at following store level analyses of historical financial performance, local market conditions and cost structure.”
He said the process to identify underperforming locations is continuing. In court documents, the company lists 65 properties for which it recommends rejecting the leases.
The list includes 13 locations in California and nine in Florida.
Nick Vojnovic, former chairman of the Florida Restaurant & Lodging Association, said the Sunshine State has been hit hard by an unemployment rate that’s much higher than the national average and a troublesome home foreclosure rate.
“The fact is so many restaurants in Florida have been hit hard. If you’re going in with debt or not on your A game, it’s going to be hard,” Vojnovic, former president of the company that owns the Beef ‘O’ Brady’s sports pub chain, said. “It’s been a very slow recovery and it’s taking a lot of good people down.”
Among other properties on the lease rejection list were seven in Michigan; six in Arizona; five in Colorado; and three each respectively in Oregon, Washington state, Oklahoma and Illinois. Two units were listed in each of Nevada, Tennessee, Texas and Utah. And single units were listed for closure in Minnesota, Kansas, Wisconsin, North Carolina and Nebraska.
A look at Perkins, Marie Callender’s histories
The family-dining Perkins chain, founded in 1958, offers breakfast, lunch and dinner. But breakfast – which is served all day -- accounts for about half of entrees sold, according to court documents.
Marie Callender’s, founded in 1948 in Long Beach, Calif. by pie baker Marie Callender, is a full-service family-casual dining concept known for its pies, which are baked fresh daily. Most restaurants serve beer and wine and some have a full bar.
The chain includes slightly higher-end variants called Callender’s Grill in Los Angeles, as well as the one-off East Side Mario’s in Lakewood, Calif.
The two brands have a similar background. Founder Marie Callender’s son Don Callender sold the California pie chain in 1986 to Ramada Corp. for $90 million. Wilshire Restaurant Group bought Ramada’s stake in 1989, then sold the chain four years later to investment firm Saunders, Karp & Megrue. Castle Harlan bought the then 166-unit Marie Callender’s in 1999 for about $150 million.
Perkins was founded by Matt and Ivan Perkins in Cincinnati, who in 1979 sold the concept to Holiday Inns Inc. Don Smith, one of the hotel chain’s board members, bought Perkins six years later. After a brief period as a public company, it was acquired by Castle Harlan in 2005 for about $245 million.
Castle Harlan Inc., which owned both brands separately, consolidated them in 2006 with the goal of finding operational synergies and growing the largely regional brands nationwide.
Lisa Jennings contributed to this story.
Contact Alan Snel at [email protected].
Follow him on Twitter: @AlanSnelNRN
