RM Holdco LLC, operator of the El Torito and Chevys Fresh Mex brands, announced August 6 it has filed for bankruptcy and plans to sell the company to Z Capital Group LLC, one of its largest shareholders, in a deal valued at $46.8 million.
The company said the concepts, under the umbrella of Real Mex’s restaurants, would remain open and operating as usual during the chapter 11 process. Z Capital Group is currently a partial owner. Along with co-owner Tennebaum Capital Partners, the company agreed to provide $5.5 million in debtor-in-possession financing to ensure an efficient bankruptcy and sale process.
“Today's filing is an important step in completing the sale process that Real Mex began late last year,” CEO Bryan Lockwood said in a statement. "The support from Z Capital and Tennenbaum will help minimize any disruptions and ensure that the process is seamless for our guests, employees, and vendors. We're looking forward to completing this transaction as swiftly as possible and emerging from chapter 11 in a stronger financial position, poised for future growth."
Cypress, California-based RM Holdco LLC said both chains have struggled to generate traffic amid increased competition in the Mexican segment, including from fast casual and quick service, and has battled to keep up with rising minimum wages in California. All but seven of the company’s 68 locations are in California. Real Mex runs restaurants in Virginia, New York, Maryland, Florida, and Oregon. There are 11 franchise units and the company employs about 4,600, including restaurants Acapulco, El Torito Grill, Sinigual, and Las Brisas.
As Lockwood mentioned, Real Mex was searching for buyers since last year when it contacted more than 200 potential bidders. The Z Capital offer would allow the company to take over ownership stakes held by Tennebaum Capital Partners and about 35 other institutions and individuals, per The Wall Street Journal.
According to court papers, RM Holdco would continue to seek better offers following Sunday’s chapter 11 filing in U.S. Bankruptcy Court in Wilmington, Delaware, making Z Capital Group a “stalking horse bidder.” The company asked Judge Mary Walrath to set a September 21 bid deadline for other potential buyers. Walrath would need to approve any sale.
Despite rising same-store sales at Chevys Fresh Mex and El Torito, the company fell short on loan payments of more than $230 million to two groups of lenders. The deadline was March 30. It also has a loan of about $54 million owed to a lender group that includes Z Capital affiliates. Additionally, Real Mex owes about $6.5 million to vendors. The company closed its centralized distribution company, which was shedding more than $1 million a month, in 2013.
Affiliates of Tennebaum Capital Partners and Z Capital Group, owners of 91 percent of the shares, have closed dozens of undeforming stores during the past six years and negotiated lease-termination deals with landlords. Real Mex filed for debt protection in 2011 and was sold to the company March 2012, when it had 128 restaurants.
Per The Wall Street Journal, chief restructuring officer Jonathan Tibus said in court papers there were no clear compliance platforms for crucial policies such as alcohol awareness, sexual harassment, and food handling safety, leading to costly health and safety complaints,” issues that have hurt profitability as the company dealt with lawsuits. The company said it invested in new worker training programs that cut down on the issues. However, the cost of prior litigation and ongoing compliance damaged the bottom line, the court papers added.