Quiznos eyes possible Ch. 11 bankruptcy protection

[December 27, 2011]  DENVER (AP) -- Quiznos says a majority of its creditors have agreed to a plan by the restaurant chain to restructure or pay off some $875 million in debt, but it may yet file for Chapter 11 bankruptcy protection.

The plan outlined Friday calls for one of Quiznos' major creditors, investment firm Avenue Capital, to invest $150 million of new equity capital into the chain.

The investment would be made up of equity and the conversion of debt to equity, and would make Avenue Capital majority owner of the Denver-based sandwich seller.

The plan would eliminate nearly one-third of Quiznos' debt and provide it with $75 million to continue operating.

Quiznos says it will file for bankruptcy protection if it fails to reach restructuring deals with all of its creditors and cannot receive significant concessions from former executives and certain landlords and former area developers.

Quiznos CEO Greg MacDonald said the company expects to continue operating as usual and to honor all its vendor obligations while it pursues the out-of-court restructuring process.

In April 2010, the company disclosed it received a significant capital injection from its primary shareholders and had the terms of its debt extended to give it more financial breathing room.

But this summer, the company hired advisers to help it restructure and rework its finances.

The Wall Street Journal reported in July that Quiznos had told its lenders that results in its latest quarter would likely come in well below previous projections. Its revenue fell as customer traffic dropped during the recession.

The restructuring plan Quiznos announced Friday calls for part of the funding provided by Avenue Capital to be used to retire nearly $300 million of the company's first-lien debt.

Quiznos said it reached debt restructuring support agreements with parties representing about 75.1 percent of its first-lien loans and 72.8 percent of its second-lien loans.

The plan involves restructuring the loans and equity interests in the company through either the out-of-court exchange offer or a prepackaged Chapter 11 filing.

The exchange offer would pay the holders of $650 million in Quiznos' first-lien debt $75 million in cash and extend the due date on the balance of the loans for five years after the restructuring plan closes.

All of the first-lien debt holders would be able to swap about $200 million in loans for a new second-lien debt, Quiznos said. Some of its lenders already have agreed to swap about $150 million in first-lien loans.

Creditors with some $225 million in second-lien loans will exchange their loans for a proportional share of 40 percent of new equity in the reorganized company, Quiznos said.

The company said it is seeking significant concessions from some creditors, including former company executives, landlords and developers. If it fails to get all of its debt holders to agree to the debt swap, Quiznos said it will file for bankruptcy protection.

It already has begun soliciting creditors for support of a pre-packaged reorganization plan under Chapter 11.

But the terms of such a plan would be less favorable for its creditors, the company said.

Quiznos had roughly 3,500 stores across the U.S. and in other countries as of July. It has closed about 1,500 stores in recent years.

[Associated Press]

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