Sandwich chain Quiznos is in danger of bankruptcy reports the Wall Street Journal. If the company does not find a way to restructure its $870 million debt load, Quiznos will be forced to file for Chapter 11 bankruptcy protection. Its last hope for this restructuring is not a bank, but rather a hedge fund – Marc Lasry’s Avenue Capital to be exact.
“Struggling amid slumping sales and a recent violation of debt terms, Quiznos has found a potential new owner in Avenue Capital Group, the hedge fund controlled by billionaire Marc Lasry,” reports the Wall Street Journal.
“Avenue would convert its debt to equity and invest cash in Quiznos as part of a tentative deal that would give the hedge fund more than a 70% ownership stake in the chain.” The plan, if approved, would cut Quiznos debt by roughly $281 million. The deal that is being discussed right now “is being driven by the company’s biggest lenders, who have a plan to take ownership of the company as long as other creditors give their consent.” The creditors have 30 days to accept the plan as written or face bankruptcy.
Quiznos’ debt stems from five years ago when its current owners decided to purchase the chain in a leveraged buyout. At the time, the market was at its peak and Quiznos soon reported nearly 5,000 locations. Then, the recession hit and so was Quiznos. In addition, the chain also faced increased competition from Subway, as the sandwich chain expanded its offerings to include Quiznos mainstay – toasted sandwiches. All in all, Quiznos ended up having to close roughly 1,500 locations. “Quiznos warned lenders over the summer that sales were coming in below projections, which would likely cause the chain to violate loan terms and put it in default,” reports the Wall Street Journal. At that point, “The chain hired Wall Street restructuring lawyers and bankers to negotiate with investors,” a path which eventually led to Lasry. “Avenue’s Mr. Lasry, like other distressed-debt investors, often tries to gain control of troubled companies by purchasing discounted debt and later converting it to equity, which carries more risk but also the potential for greater reward.” For instance, “In the wake of the financial crisis, Mr. Lasry has led investors to gain control of three Atlantic City, N.J., casinos bearing Donald Trump’s name and broadcaster ION Media Networks Inc., among other companies.”