Quiznos avoids bankruptcy with restructuring

Quiznos said Tuesday it has successfully completed a previously announced financial restructuring, sidestepping bankruptcy and shifting ownership to Avenue Capital Group in a debt-for-equity swap. The restructuring deal, which closed Monday, eliminated about one-third, or $300 million, of the company’s estimated $870 million in outstanding debt, the company said. In addition, Avenue Capital, a New York-based hedge fund headed by Marc Lasry, injected $150 million in new equity into the beleaguered sandwich chain, and took on a majority stake in a conversion of debt to equity. “Improving our balance sheet and putting our capital structure issues behind us are major steps forward to strengthening the Quiznos brand and our customer experience,” Greg MacDonald, Quiznos chief executive, said in a statement. “We look forward to working alongside the Avenue Capital Group team and appreciate the support of all of our lenders during this restructuring process. “Along with our dedicated franchise owners and employees, we can now focus primarily on the customer experience and our fresh, high-quality products,” MacDonald said. Keith Rentschler, president of the Quiznos Independent Franchisee Association, or QZFA, said franchisees are looking forward to turning the page and moving forward. “We’re ecstatic the deal has gotten done outside a courtroom,” he said. “And we’re excited about the opportunity to forge ahead with new ownership, and we look forward to working with them.” As part of the deal, Quiznos said 100 percent of the aggregate principal amount of the first- and second-lien loans was tendered in the exchange offer. The holders of about $650 million in first-lien loans were repaid $75 million in cash and the maturity of the balance of their loans was extended for another five years. Some lenders also exchanged about $150 million of existing first-lien loans for new second-lien loans, and holders of about $225 million in second-lien loans exchanged their loans for a pro rata share of 40 percent of the new equity in the recapitalized company. Other creditors and stakeholders, including Quiznos’ previous owner, Consumer Capital Partners, agreed to other concessions, which allowed the 2,600-unit sandwich chain to avoid bankruptcy. Quiznos was owned by Consumer Capital Partners, a Denver-based investment firm led by the chain’s founder Rick Schaden and his father Richard, along with private-equity firm CCMP Capital Advisors LLC. Quiznos has struggled with declining sales in recent years. After reaching a peak of about 5,100 units in 2006, the unit count began to fall as franchisees closed their doors. John Gordon, a consultant with Pacific Management Consulting Group in San Diego, said the chain had a fundamental problem with store-level economics, estimating that as many as 2,500 franchise locations have closed since 2006. The hit to its franchise base left the heavily leveraged Quiznos corporate unable to service its debt, Gordon said. Media advertising in recent years also was significantly pulled back. Gordon, however, said he was optimistic that the restructuring would give Quiznos a fresh start. The chain already has begun work on building its nontraditional franchise opportunities, such as locating Quiznos in convenience stores, as well as stepping up international growth, both of which have a lot of potential, he said. “This is a good shot,” Gordon said. “But it’s critically important they work to improve the business model.” Rentschler of the franchisee association, who operates six Quiznos locations in the St. Louis, Mo., market, agreed. “As we sit here today, we have a business model that is broken and unsustainable,” he said. “We are very hopeful that the relationship with the new owners is one that will be fruitful for all parties.”