November 5, 2018
On Sunday night, the New England Patriots took down the Green Bay Packers but the official pizza of the team took an “L.” Indeed, New England local news reported that dozens of area Papa Gino’s locations had abruptly shut down. Now we know why. And, it turns out, the dozens were really 95 stores all in. Which, we’d be remiss not to note, affects 1,100 employees who are now out of jobs.
On Monday morning, PGHC Holdings Inc., the parent company of 141 company-owned and 37 franchisee-and-licensee-owned New England restaurant chains Papa Gino’s Pizzeria and D’Angelo Grilled Sandwiches, filed for bankruptcy to effectuate a sale to WC Purchaser LLC, an affiliate of Wynnchurch Capital. Wynnchurch will provide a DIP credit facility to fund the case.
We, here, at PETITION have highlighted disruption in the casual dining space ad nauseum. The debtors, in their filings, confirmed a lot of what we’ve been saying. They noted:
Consumer preferences have shifted from in-restaurant dining to delivery and carryout ordering, which require fewer overall restaurants and smaller restaurant size to service the same geographic area. As a result of these shifting consumer preferences, the Debtors’ existing footprint is too large — in terms of both number and size of restaurants. In addition, minimum wage increases across many of the Debtors’ markets combined with higher employee benefit costs associated with health plans have also pressured the Debtors’ cash flows. The Debtors also have faced increased competition and associated price pressure from national chains that have increased their footprint in the Debtors’ core New England markets. In addition to these and other operational factors, the Debtors have a substantial debt load that, as noted above, they have been unable to service and are in default under.
Consequently, the debtors have let leases expire, engaged in (mostly unsuccessful) negotiations with landlords on lease forgiveness, changed internal IT systems, emphasized digital media marketing and formulated a smaller more efficient restaurant concept. Nevertheless, these efforts didn’t generate enough revenue and profitability to enable the debtors to handle their debt burden.
Wynnchurch will provide the company with a $13.8mm DIP facility, permit the use of cash collateral, and credit bid the debt it took over to the tune of $20mm. In other words, this is effectively a “loan-to-own” play. Bravo!
Jurisdiction: D. of Delaware
Capital Structure: $6.9mm Revolver A, $1.5mm Revolver B, $18.4mm Term Loan A (WC Financeco A LLC, as assignee), $34.2mm second lien debt (WC Financeco B LLC, as assignee), $27.9mm unsecured mezz debt (Hartford Life Insurance Company), $11.9mm unsecured mezz debt (Brookside Mezzanine Fund)
Legal: Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Matthew Harvey, Eric Moats)
Financial Advisor: CR3 Partners LLC
Investment Banker: North Point Advisors LLC
Real Estate Advisor: Hilco Real Estate LLC
Claims Agent: Epiq Corporate Restructuring LLC (*click on company name above for free docket access)
Other Parties in Interest:
Mezz Debt Lenders
Legal: Choate Hall & Stewart LLP (Douglas Gooding)