The operator of Coco's and Carrows restaurants, struggling with debt and sagging sales, said Wednesday that it has filed for bankruptcy protection.
FRD Acquisition Co. of Irvine filed a bankruptcy petition after skipping a $9.8-million payment on $167.6 million in debt securities. FRD said, however, that it has enough money to continue operating normally, paying vendors and employees on time.
Bankruptcy protection will allow FRD to restructure its debt and suspend additional interest payments, making the chains more attractive to buyers, said David Devoy, president and chief financial officer.
"No buyer would want to take on [that debt]," he said.
The Chapter 11 petition, filed Wednesday in U.S. Bankruptcy Court in Delaware, listed assets of $218.8 million and liabilities of $330.1 million, including the $167.6 million in notes, which carry a 12.5% interest rate and are due in 2004.
FRD's parent, Advantica Restaurant Group Inc. of South Carolina, put Coco's and Carrows on the block last February to focus on Denny's restaurants, its core chain. Advantica had hoped to complete a sale by the end of last year but now hopes to dispose of the chains by the end of this year, spokeswoman Karen Randall said.
The company is negotiating with several possible buyers, she said, although she refused to reveal their names or disclose whether Advantica has received any concrete offers.
"The [bankruptcy] action has no impact on Advantica [or] Denny's," Advantica said in a statement.
Advantica bought Coco's and Carrows in 1996 for $306 million. But the two chains, with a total of 622 company-owned and franchised restaurants, many in California, have been a drain on the parent company.
Randall Hiatt, a Costa Mesa restaurant consultant, estimated that Coco's and Carrows together will fetch $100 million to $115 million. The chains are facing increasing pressure from fast-food restaurants and funkier chains such as Chili's.
Advantica has done a poor job of freshening up the appearances of Coco's and Carrows, Hiatt said. "They look more like old coffee shops," he said.
Advantica launched an extensive make-over of 144 company-owned Coco's, but the effort was suspended late last year after only about 30 units had been remodeled, Devoy said. The company hopes to resume the remodeling effort by late summer.
Carrows went through a less ambitious upgrade in early 1999 with new outdoor signs and refurbished interiors.
The Coco's and Carrows chains have struggled with sluggish sales for some time. In the third quarter, sales at Coco's stores open at least a year--a key measurement of industry performance--dropped 5.1%. Carrows' same-store sales declined 4.7%.
Advantica, under its former name, Flagstar Cos., filed for Chapter 11 protection in 1997 after sales were hurt by discrimination lawsuits filed by minority customers against some Denny's restaurants.
Flagstar emerged from bankruptcy protection and changed its name to Advantica in 1998, shedding more than $1 billion in debt.
Advantica shares fell 2 cents Wednesday to $1.01 in over-the-counter trading.
Bloomberg News was used in compiling this report.