The investment group in line to take over Cypress-based Real Mex Inc. appears set to keep management on board as it looks to spice up the performance of its El Torito, Acapulco and Chevys Fresh Mex restaurant chains.
Real Mex Chief Executive David Goronkin—who has closed a number of restaurants in tandem with new marketing and advertising campaigns since he took the job about eight months ago—is expected to remain at the helm.
“The new ownership group has confidence in the management team and strategies under way, or else they wouldn’t be buying the company,” Real Mex spokesperson Rick Van Warner said.
A bankruptcy court recently approved the sale to RM Opco LLC, and the deal is expected to become final next month. It will leave the company with less debt and renegotiated leases for many of its remaining 141 company-owned restaurants and 20 franchised locations.
Real Mex also owns smaller brands, including Las Brisas in Laguna Beach, and has a food manufacturing and distribution subsidiary called Real Mex Foods Inc. It had $478 million in revenue in 2010, the last full year before it began to trim operations.
RM Opco
RM Opco is led by Santa Monica-based Tennenbaum Capital Partners LLC, with JP Morgan Investment Management Inc. in New York and Z Capital Partners LLC in Chicago, also part of the group.
Nick Setyan, a restaurant analyst with Wedbush Securities Inc. in Los Angeles, said the new owners likely believe an improving economy coupled with ongoing improvements will bring customers back.
“They’re probably counting on a cyclical upturn being a tailwind for them,” Setyan said. “And I’m sure some current strategies are addressing the issues they had. There’s not too much else these (investors) can bring to the table that current management wasn’t already doing.”
Hit Hard
Real Mex was hit hard by the recession, when many of its customers migrated to less expensive fast-casual restaurants such as Denver-based Chipotle Mexican Grill. The company closed unprofitable locations and updated menus, but customers didn’t return fast enough for Real Mex to keep up with high rents and debt.
Real Mex’s debt was a key driver of the company’s losses. Through 2010 and the first half of last year, the company was spending about $7 million on interest each quarter.
Without debt payments, the company would have been profitable but instead lost $24 million in 2010 and $10 million through the first six months of last year. The company reported in bankruptcy filings that it was on pace to default by last October and was unable to agree to a restructuring plan with its creditors, including Tennenbaum and the other investors now set to own the company.
$50.2M
Tennenbaum held $50.2 million in notes Real Mex issued in 2009, making it the company’s biggest note holder.
Real Mex’s bankruptcy reorganization plan calls for Tennenbaum, JP Morgan and Z Capital to pay $46 million in cash, to assume certain liabilities and to swap about $80 million in debt in exchange for an 85% stake in the company, with the balance of equity going to remaining note holders.
Tennenbaum has $5 billion in assets under management with $100 million invested in companies in the restaurant industry. The firm doesn’t list food service or restaurants as one of its investment specialties; officials didn’t return phone calls seeking comment.
Koren is a reporter for the Los Angeles Business Journal.
