Buffets, Inc., a steak-buffet restaurant company, announced that it has completed its restructuring and that it has emerged from chapter 11 reorganization, six months after its pre-negotiated filing on January 18, 2012. Buffets currently operates 357 restaurants in 35 states.
As part of the reorganization, the Company eliminated all of its outstanding pre-petition term debt, totaling approximately $255 million, as well as annual interest expense of more than $35 million, and closed approximately 140 underperforming restaurants. With its emergence from Chapter 11, the reorganized company’s outstanding stock is wholly owned by its pre-petition lenders.
The Bankruptcy Code allow debtors various methods to recapitalize their debts, including a debt for equity swap where loans are converted into equity of the reorganized company. A secured creditor even has the option to buy substantially all the assets of the debtor during a bankruptcy sale process, by bidding its secured claim as part of the purchase price for the debtor. See, e.g., 11 U.S.C. § 1129(b)(2)(A)(ii).
Section 365(a) of Bankruptcy Code also allows debtors to reject their pre-bankruptcy lease obligations, while leaving landlords with capped damages arising from their terminated leases. One or more of these bankruptcy devices appears to have been employed in the Buffets case.
In connection with its emergence from bankruptcy, Buffets also secured $50 million in exit financing, which will enable the company to satisfy its chapter 11 plan obligations and provide working capital for ongoing operations. Section 364 of the Bankruptcy Code enables debtors to obtain such financing, during their cases, on a secured basis. And many lending institutions favor providing such post-petition financing, especially after a debtor has undergone an effective restructuring of its debts.
CEO of Buffets, Mark Andrews, commented on the success of the bankruptcy, stating “[w]e have emerged with significantly less debt, a much improved balance sheet and a sustainable capital structure, all of which will allow us to leverage our strong brands as we make investments in the future success of our restaurants.” It sounds like Buffets was able to avail itself of many of the benefits offered by the Bankruptcy Code.
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