Taco Bueno Restaurants, Inc. – Files Chapter 11, Announces Prepackaged Plan of Reorganization and Sale of Company to Sun Holdings

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November 6, 2018 – Taco Bueno Restaurants and 9 affiliated Debtors (“Taco Bueno” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 18-33678 [Docket No. 1]. Privately held Taco Bueno, a Tex-Mex themed restaurant chain with 169 restaurants in Texas, Oklahoma, Arkansas, Kansas, Louisiana and Missouri, is represented by Paul E. Heath of Vinson & Elkins. Further board-authorized engagements include Houlihan Lokey Capital as investment banker, Berkley Research Group as restructuring advisor and Jones Lang LaSalle Americas as real estate advisor. The Company’s petition notes between 1 and 50 creditors; estimated assets between $50 million and $100 million; and estimated liabilities between $100 million and $500 million. Documents filed with the Court list the Company’s three largest unsecured creditors as (i) Taco Supremo LLC ($104,896,018 of unsecured debt claim), (ii) Icon International, Inc. ($595,396 trade debt claim) and (iii) Spirit Master Funding X, LLC – Tabu I Ml ($431,754 trade debt claim).
 
Prepackaged Acquisition by Sun Holdings and DIP Financing
 
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 has provided a commitment for up to $10 million in debtor-in-possession (“DIP”) financing that, subject to court approval, will 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.
 
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.”

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