Prandium Inc., an Irvine restaurant holding company awash in debt, said Tuesday that it is selling its flagship El Torito restaurants for $130 million to an investment group that owns the rival Acapulco restaurant chain in Long Beach.
The deal marks one of several involving Orange County-based restaurant chains in recent months, including El Pollo Loco and Marie Callender Pie Shops Inc. Two other Irvine-based chains, Coco's and Carrows, have been put up for sale by Advantica Restaurant Group.
Prandium said it is selling the Mexican food chain to help pay $270 million in debt coming due over the next four years. The 101-unit El Torito chain, which has 18 locations in Orange County, is expected to retain a separate identity from the 49-unit Acapulco chain.
The chain is being acquired by Long Beach-based Acapulco Acquisition Corp., which is owned by the New York Investment firm of Bruckmann, Rosser, Sherill & Co. Neither could be reached for comment.
Industry experts said the deal is part of a trend in which several restaurants are consolidated under one roof. Marie Callender and El Pollo Loco also were acquired by investment firms, for example.
"Even if the chains keep the same names, they can somewhat reduce administrative and marketing expenses as well as back-office functions like payroll, insurance and other expenses," said Ronald Paul, president of Technomic, a Chicago-based restaurant consulting firm.
Prandium said it also is selling Las Brisas restaurant, its upscale eatery in Laguna Beach, as part of the El Torito deal.
Prandium will retain its 148 Chi-Chi's Mexican restaurants in the Midwest, 43 Koo Koo Roo restaurants and 14 Hamburger Hamlets, as well as four El Torito Express eateries, which cater to shoppers and working people who are looking for a quick lunch.
El Torito is considered Prandium's strongest-performing chain, with sales of $220 million last year, up 3% from 1998. But financial advisors recommended that the chain be sold to help meet the debt obligations, which included about $100 million in bonds due in 2002.
The company had bought the El Torito chain six years ago as it moved to position itself as the world's largest operator of full-service Mexican restaurants. At the time, Prandium was called Family Restaurants Inc.
It currently operates more than 250 Mexican restaurants, including the El Torito chain.
"With Prandium needing to pay down that debt, this was probably their only alternative at this point," said Janet Lowder, president of Restaurant Management Consultants of Rancho Palos Verdes. "It's an established concept that is still doing fairly well."
The El Torito sale also will allow Prandium to put more money into the Koo Koo Roo chain, which it acquired in 1998, as well as a remodeling program at the Chi-Chi's restaurants, Prandium President Kevin Relyea said in a statement.
The company didn't have enough cash to complete the Chi-Chi's renovation, said Irvine-based consultant Randall Hiatt. "The resources only go so far in a debt-heavy company," he added.
The company has posted losses the last three years even as sales increased. In fiscal year 1999, Prandium lost $36.5 million on sales of $536.6 million. The company had cash of about $4 million as of Dec. 26, down from $17.7 million a year earlier.
In Southern California, some El Torito and Acapulco restaurants are in proximity to one another. But if the competing restaurants remain profitable, the new owners will keep them both open, Hiatt said.
He said the Acapulco and El Torito chains have benefited from a lack of big restaurant rivals, although there has been a rise in the number of independents and quick casual chains such as Baja Fresh, La Salsa and Rubio's.
The deal is expected to close within three months. Prandium's stock closed at 32 cents a share, up 3 cents, in over-the-counter trading.
El Torito has about 5,800 employees at its U.S. restaurants. That includes 49 in the Irvine headquarters, whose fate is unclear.
El Torito, which was founded by Larry Cano in 1954 in Encino, has been headquartered in Orange County since 1976 when W.R. Grace Corp. acquired the chain. El Torito has since seen a number of ownership changes.
At one point, El Torito underwent a rapid expansion, operating more than 200 restaurants throughout the country in the early 1980s. But other owners later scaled back the chain, closing unprofitable locations and converting others to Chi-Chi's.
W.R. Grace sold El Torito and other restaurant holdings in 1986 to a new corporation, Restaurant Enterprises Group Inc. But the new company took on $737 million in debt in the leveraged buyout.
Restaurant Enterprises filed for bankruptcy protection in 1993. The following year, it was acquired by San Diego-based Foodmaker Inc. and renamed Family Restaurants Inc. as part of its reorganization plan. The company became Koo Koo Roo Enterprises Inc. after merging with Koo Koo Roo in 1998. It then changed its name to Prandium Inc., the third name change in six years.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
At A Glance: El Torito and Acapulco restaurants
Restaurants in U.S.: 101
Restaurants in Orange County: 18
Leadership: Kevin Relyea, CEO
Ownership: Prandium Inc.
Tuesday's stock close: 32 cents
Headquarters: Long Beach
Restaurants in U.S.: 49
Restaurants in Orange County: 6
Leadership: Maris Laipenieks, president
Ownership: Bruckmann, Rosser, Sherrill & Co.
Tuesday's stock close:Privately held
Sources: Bloomberg News, Times reports.