Ice Cream and Burger Chain Prepares for Possible Bankruptcy Filing as Fewer Consumers Eat Out
The Friendly's restaurant chain is preparing for a possible Chapter 11 bankruptcy filing and potential sale, said people familiar with the matter.
Friendly Ice Cream Corp., which employs roughly 10,000 people and operates more than 500 restaurants known for sundaes and hamburgers, could seek protection from creditors as soon as next week, the people said.
The Wilbraham, Mass.-based company would then try to sell itself through a bankruptcy auction, the people said.
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A slumping U.S. economy has forced many consumers to dine out less frequently, crimping Friendly's sales just as rising prices for corn, butter and other ingredients drained its cash.
The company's struggles are familiar to many restaurant chains, from Quiznos to Sbarro, that have endured a similar squeeze.
Friendly's, which carries more than $250 million in debt, is in talks with Wells Fargo & Co. for about $70 million in so-called debtor-in-possession financing that would keep it afloat during bankruptcy proceedings, the people said. The bankruptcy financing would consist of about $25 million in new funds and other existing debt that would "roll up" into the new loan, the people said. Wells Fargo declined to comment.
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Sun Capital Partners Inc., the Boca Raton, Fla., buyout firm with a history of restaurant deals, paid $130.81 million in cash for all of Friendly's stock in 2007. The private-equity firm is also a Friendly's creditor.
Some of Sun's other investments include Boston Market Corp. and Real Mex Restaurants. Real Mex, like Friendly's, is pursuing a debt restructuring.
Sun could put in a "credit bid" for Friendly's by forgiving debt in exchange for retaining ownership, the people said.
A Friendly's spokeswoman didn't provide a comment. Sun Capital didn't respond to requests for comment.
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Friendly's hired law firm Kirkland & Ellis and Zolfo Cooper, a turnaround advisory firm, to negotiate with creditors and prepare its bankruptcy filing, the people said.
Declining sales, meanwhile, have triggered a condition in a Wells Fargo credit line that prevents Friendly's from borrowing as much as it would like, the people said. Friendly's has about $3.5 million in available cash between its borrowing abilities and cash on hand, one of these people said. That is enough for Friendly's to operate in the near term, this person said.
Friendly's already owes another $30 million or so to Wells Fargo.
Separately, it also carries roughly $225 million in secured bond debt owed to Sun, its private-equity owner.
Friendly's began as a small ice cream shop opened by two brothers during the Great Depression in Springfield, Mass. It later added hamburgers and started expanding along the East Coast through the 1950s and 1960s.
By the 1970s, the company operated hundreds of locations in the mid-Atlantic and Northeast U.S. In 1979, the Blake brothers who founded the company sold it to Hershey. It changed hands again in the 1980s before Sun's eventual buyout in 2007.
--Shira Ovide contributed to this article.
Write to Mike Spector at email@example.com
- Bankruptcy Filing