The parent of Perkins and Marie Callender’s shuttered 32 restaurants before filing for Chapter 11 protection Monday in U.S. Bankruptcy Court in Wilmington, Delaware. The company owes more than $114 million to senior lenders.
The Memphis, Tennessee-based company also operates Foxtail Foods, a bakery goods manufacturing business that supplies its restaurants and sells to various third-party customers. Perkins & Marie Callender’s said an offer is on the table for Perkins and parts of Foxtail Foods to be sold to stalking horse bidder, Perkins Groups. An amount was not disclosed. And talks are also ongoing to buy Marie Callender’s and all of the Foxtail arm. Competitive bidding will take place in September, per the bankruptcy auction timeline, with deals to close within 75 days of filing.
The company, which broke out its closures as 11 Perkins and 21 Marie Callender’s, said its financial performance was negatively affected by “a decline in sales across the family-dining and casual-dining industries due to decreased guest traffic.”
Monday’s filing said suppliers and other vendors are owed roughly $8 million. The company is seeking court permission to pay up to $2.5 million of that during proceedings. It owes lenders about $100 million, with total liabilities of $100 million to $500 million. The filing values its current assets at $50 million to $100 million.
Lenders led by Bank of America are offering bankruptcy financing up to $7.75 million. The majority of the debt is in secured loads.
The company also credited the bankruptcy to “the compounding impact of negative Perkins and Marie Callender’s sales in 2017 and 2018 on Foxtail—a captive and material vendor to the restaurants.”
Other issues cited were, “an elevated commodity environment; statutory increases in labor costs; [and] an increasingly tight labor market.” Additionally, Foxtail took a hit following the loss of a large customer in 2017.
The company did, however, say it has seen “dramatic same-store sales increases” since late 2018 as its launched several management initiatives, including a revised marketing and media strategy, and the introduction of an off-premises program.
“While the debtors believe they have reached a point of stabilization, the challenges faced in 2017 and 2018 led the debtors to begin considering certain restructuring alternatives,” the filing said.
Perkins & Marie Callender’s Inc. filed for Chapter 11 bankruptcy protection in June 2011 after securing key creditors’ support for a plan to cut the company’s $440 million debt. It reported assets of $290 million in its bankruptcy petition at the time.
The company emerged that December with three members of Minnesota-based Wayzata Investment Partners LLC on the board of directors. Funds managed by the Wayzata-based private equity firm were now majority stakeholders, and currently control about 73 percent of the company.
Perkins & Marie Callender’s exited bankruptcy with fewer stores and debt of $138 million, according to Debtwire.
The company was formed in 2006. Affiliates of private-equity firm Castle Harlan Inc. combined Perkins Restaurants, founded in 1958, and Marie Callender’s, which was created in 1948.
Debtwire released a report in June saying Perkins & Marie Callender’s launched a sale process February via investment banking firm Houlihan Lokey Capital. It marketed itself off $15 million to $20 million in adjusted 2018 EBITDA. But the process struggled to gain footing.
Monday’s filing admitted the company retained Houlihan on January 24, “an investment bank with expertise in mergers and acquisitions, recapitalization, and financial restructuring,” to assist the company with, among other things, exploring a potential sale of the company’s assets. Houlihan contacted about 120 potential strategic and financial acquirers, the filing said.
They ultimately selected Perkins Groups as the “stalking horse” purchaser to buy all of Perkins’ assets and “certain of the Foxtail assets.”
“In addition, the debtors are currently in discussions with various third parties regarding the sale of all or a portion of the Marie Callender’s assets and all of the Foxtail assets [including the Foxtail assets for which there is currently a stalking horse purchaser, subject to a higher or better offer being received for such assets], including exploring whether a stalking horse[s] can be identified for the purchase of such assets,” the filing said.
The company set September 10 as a suggested bid deadline. The auction would take place at the offices of Akin Gump Strauss Hauer & Feld LLP (if necessary) on September 12. By September 19, a sale hearing would take place to consider approval of the deal.
In the meantime, it will continue to market and solicit offers for all or a portion of the assets.
Debtwire said Perkins & Marie Callender’s struggled to find a buyer previously due to its lack of growth, past issues, and a competitive operating environment, especially for legacy sit-down chains.
It attempted a sale in 2017, another source added. Two years prior, Perkins’ considered refranchising underperforming corporate locations—a strategy Steak ‘n Shake is currently undertaking as it hopes to move to a single-unit operator model, not unlike the one Chick-fil-A built its quick-service empire on.
The April before its 2011 bankruptcy filing, Perkins owned and operated 150 restaurants in 13 states and 314 franchised-run units in 31 states and throughout Canada. It owned and operated 85 Marie Callender’s restaurants in nine U.S. states and had 37 franchises in the U.S. and Mexico. Before the bankruptcy, the company said it launched a store-reduction program to shutter 65 of its company-owned locations—a move that would reduce its workforce by about 2,500 people.
ConAgra Foods, Inc., also purchased the Marie Callender’s brand trademarks from Marie Callender Pie Shops, Inc., for $57.5 million in June 2011.
Currently, the company owns or holds the franchise rights to 400 restaurants. Marie Callender’s has about 50 domestic units. Earlier in the summer, Perkins had about 370 locations with 254 of them franchised.
In early July, Perkins franchisee Campbells Land Co. Inc declared bankruptcy listing $10 million to $50 million in liabilities to more than 200 creditors, according to court filings. The operator was taken to court by Perkins & Marie Callender’s prior to that over royalty payments and unapproved practices. The company asked the court to oust CLC from 26 locations. Perkins’ June 27 lawsuit claimed CLC owned nearly $2.2 million in fees.