January 2, 2019 – The Debtors filed a Court notice announcing that their Joint Prepackaged Chapter 11 Plan of Reorganization had gone effective on December 31, 2018 [Docket No. 264]. The Court had previously confirmed the Plan on December 19, 2018 [Docket No. 242].
On November 6, 2018, Taco Bueno Restaurants, a Tex-Mex themed restaurant chain with 169 restaurants in Texas, Oklahoma, Arkansas, Kansas, Louisiana and Missouri filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas.
Prepackaged Acquisition by Sun Holdings and DIP Financing
Also on November 6, 2018, Taco Bueno Restaurants announced
that it had entered into an agreement with Taco Supremo, LLC, an affiliate of Sun Holdings, Inc. (“Sun Holdings”) and certain of its other stakeholders regarding the terms of a comprehensive financial restructuring. Pursuant to the agreement, a Sun Holdings affiliate acquired all of Taco Bueno’s outstanding bank debt and provided a commitment for up to $10 million in debtor-in-possession (“DIP”) to support the Company’s operations during the financial restructuring process. Under the terms of the Company’s prepackaged plan of reorganization, Sun Holdings would become the owner of Taco Bueno through a debt-for-equity swap.
According to the press release, “Sun Holdings, Inc. is a national holdings group headquartered in Dallas, Texas, that owns and operates a portfolio of more than 800 locations in eight states. Sun Holdings has been ranked as the 8th largest franchisee in the U.S. by Restaurant Monitor, and the Largest Hispanic Franchisee in the U.S. The organization operates 296 Burger King, 145 Popeyes, 87 Arby’s, 21 Golden Corral, 32 Cici’s Pizza, 18 Krispy Kreme, 135 T-Mobile, and 84 GNC locations, as well as 3 restaurants in various airports and approximately 160 real estate units.”
Key Terms of the Restructuring
The Disclosure Statement notes, “On October 24, 2018, the Initial Lender Group agreed to terms with Taco Supremo, LLC (‘Taco Supremo’), an affiliate of Sun Holdings, Inc. (‘Sun Holdings’), for the sale of 100 percent of its secured debt, which was the highest and best offer available at the debt auction in accordance with the bid instructions. The Initial Lender Group, holding in excess of $130 million in secured debt, made an informed decision to agree to the sale in order to receive a certain recovery in a highly distressed situation, and is supportive of the restructuring contemplated in the Chapter 11 Cases. In addition to acquiring all of the Company’s funded secured debt under the Prepetition Credit Agreement (as defined herein), Taco Supremo agreed in writing to execute the Restructuring Support Agreement dated November 6, 2018 (the ‘Restructuring Support Agreement’) providing terms and milestones for its support of a comprehensive restructuring transaction (the ‘Restructuring’) as embodied in the Plan that will convert all of Taco Bueno’s funded debt into equity, thereby right-sizing the Company’s balance sheet and positioning it for growth and to better compete in the competitive Tex-Mex QSR sector.
As the new money DIP lender and the largest secured lender, Taco Supremo seeks to convert its DIP and secured lender claims into 100 percent equity in the reorganized Company via a confirmed Plan. Taco Supremo intends to work with the Company to use an accelerated chapter 11 process to right-size the lease footprint and compromise certain liabilities while satisfying all administrative and priority Claims. The Company explored whether Taco Supremo would be interested in conducting an out-of-court transition of ownership, but Taco Supremo indicated that it preferred to pursue such a transaction and provide the necessary financing through a chapter 11 process. In doing so, Taco Bueno is positioned to preserve a valuable brand and continue providing a quality service for its loyal customers and jobs for thousands of local employees. Time is of the essence to ensure this objective is achieved. To that end, the Sponsor also fully supports the Restructuring contemplated by the Plan.
Events Leading up to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Miller Declaration”) [Docket No. 5], Haywood Miller, a Managing Director at Berkeley Research Group, detailed the events leading to the Company’s Chapter 11 filing. According to the Miller Declaration, “The Company filed the Chapter 11 Cases because sales and revenue dramatically declined in recent years creating top line pressure on liquidity such that the Company feared it could no longer service its debt obligations under the Credit Agreement and its obligations to landlords under the leases absent further steps….I believe that the Company’s decline in revenue is attributable to a series of factors, including a lack of sufficient investment in new marketing campaigns, menu and product upgrades, store renovations and remodeling, and store technology. Additionally, increased competition in the Mexican QSR space in recent years and change in customer demographics over time resulted in both sales declines and certain stores being located in less than optimal areas for their customer base. In an effort to address falling revenue, prior management raised prices on many items, resulting in a mismatch between price and value that drove numerous loyal customers to competitors who provided the affordability and convenience that customers desired.”
The following is a summary of classes, claims, and voting rights and expected recovery (Defined terms are as degined in the Plan and/or Disclosure Statement):
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
- Class 3 (“Prepetition Lender Secured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $130,912,500 plus any accrued interest, fees, and costs under the Prepetition Credit Agreement as of the Petition Date. The holder of the class 3 claims (Sun/Taco Supremo) will receive 100% of the New Common Stock issued and outstanding as of the Effective Date.
- Class 4 (“General Unsecured Claims”) is impaired, deemed to reject and entitled to vote on the Plan. Holder will receive its Pro Rata share of the GUC Cash Pool in accordance with the Committee settlement described in Article IV.O of the Plan.
- Class 5 (“Intercompany Claims”) is unimpaired/impaired, deemed to reject and not entitled to vote on the Plan. Expected recovery is 0%.
- Class 6 (“Intercompany Interests”) is unimpaired/impaired, deemed to reject and not entitled to vote on the Plan. Expected recovery is 0%.
- Class 7 (“TB Holdings Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Expected recovery is 0%.
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