Restaurateur Buffets Inc. Dips Into Bankruptcy Court
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Restaurateur Buffets Inc. Dips Into Bankruptcy Court

January 26, 2012


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Buffets Inc., a national restaurant operator that owns almost 500 restaurants under varying names, has filed for bankruptcy due to an "unsustainable debt burden," according to a Reuters report.

The pre-arranged bankruptcy, in which the company will reportedly receive a $50 million from a brave lender, represents the second trip to bankruptcy court in the last four years for the struggling dining chain.

The company, which owns 494 different restaurants under names like Ryan’s, HomeTown Buffet, and Fire Mountain, cites the weakened economy and its own inability to leave certain leases as the reasons for the company’s filing.

Reportedly, Buffets had tried to close several different restaurants in an effort to shed some unproductive properties, but was thwarted in many cases due to lease restrictions.

The news, however, is not all bad for Buffets, which reportedly reached an agreement with its biggest lenders on a deal that would recapitalize the company in return for the forgiving of almost all of its $245 million in debt.

Surprisingly, this $245 million figure is a steep decline from the company’s previous debt load, which totaled almost $1 billion before the company filed its first bankruptcy four years ago.

In exchange for their willingness to forgive the debt, the company’s senior lenders will receive large amounts of common stock in Buffets that will be created when the company restructures itself.

In addition to this deal, the company plans to close 81 under-performing restaurants as soon as it is able to free itself from the leases. Sources indicate that the bankruptcy filing will take roughly six months.

In the meantime, Buffets and its bankruptcy attorneys will attempt to work out the finer details of the multi-million dollar plan, which must still be approved by a bankruptcy judge in order for it to have legal effect.

The report suggests that Buffets’ pre-arranged bankruptcy is very similar to the strategy used by Friendly Ice Cream Corp., another restaurant operator that filed for bankruptcy in late 2011.

And, as the economic recovery continues to plod along at a snail’s pace, and as fewer Americans eat outside of their home, many more restaurants may seek bankruptcy protection in 2012.

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