Case Studies

Creating Going-Concern Value for Restaurant Franchisee

J.S. Held Acquires Shechter & Everett to Expand Forensic Accounting Capabilities for Family Law Disputes in Florida

Read More close Created with Sketch.
Home·Creating Going-Concern Value for Restaurant Franchisee

The Situation

There are 125 restaurants located in Virginia, Illinois, Pennsylvania, Ohio, and North Carolina.

  • A Private Equity-Owned Company struggled to generate positive cash flow due to numerous unprofitable locations, rising labor costs, and food cost inflation.
  • Substantial liabilities owed to Franchisor ($6M for Royalty and Marketing Dues) and Landlords ($2M for past due rent).
  • In hot water with Franchisor over deferred Capital Expenditures (~$30M), the majority of which was for “brand reimaging” updates.
  • At the time J.S. Held was engaged, the Company expected to run out of cash in one week if a plan was not developed.
  • Bank had risk of loss of over 85% on $36M loan.
  • Prior consulting group calculated that the bank needed to fund a $10M DIP Loan to sell the company in Bankruptcy.

How We Advised

Our experts were engaged as Chief Restructuring Officer and worked with Management to quickly develop restructuring options.

  • Immediately shut down 35 unprofitable locations over the Franchisor’s objection.
  • Filed Chapter 11 Bankruptcy in the Northern District of Ohio with a Stalking Horse bidder five months later to execute a 363 Sale.
  • By shutting down unprofitable locations and deferring selective expense payments, the Company was able to operate in Bankruptcy using Cash Collateral and without a DIP loan.
  • Engaged in negotiations with the landlords for lease reductions.
  • Prepared a thoroughly vetted Cash Collateral Budget for the Chapter 11 process.
  • Created a milestone-based Key Employee Incentive Plan (“KEIP”) compensation structure.
  • Worked with an Investment Banking firm to market the Company to ~400 prospective buyers, and our experts worked with the Bank to allow the Company time to improve EBITDA and sell the business.
  • Held a 363 Auction Sale, wherein restaurants were auctioned off by geographic markets.
  • Sold 82 of the remaining 90 locations to four respective buyers.
  • The Bank recovered 63% of $36M term loan, greatly exceeding the original expectations of only a 15% recovery.

Key Contact

Dan F. Dooley, CTP 
Senior Managing Director 
Strategic Advisory Practice 
+1 603 660 8952 
[email protected] 

Related Practice Areas

> Chief Restructuring Officer (CRO) and Interim Management Services 
Our experienced C-suite interim executives advise and support companies in financial distress, experiencing hypergrowth, or that are challenged by critical vacancies among senior leadership. Whether the leadership void results from operating challenges, a recent officer resignation, the need for added support during busy periods, or during an extended job search for the right permanent hire, our experienced executives provide immediate relief and value. 

 

> Turnaround and Restructuring Services 
Navigating the many challenges confronting a company in transition requires an operationally focused approach that looks beyond the balance sheet to minimize further degradation and build a path to sustainable growth. Drawing upon decades of experience in the turnaround space, we help companies in transition identify practical strategies to improve profitability and liquidity for immediate relief, while concurrently developing and executing a comprehensive turnaround plan for long-term, sustainable value creation. 

Our Experts