Prandium Struggles as Sale Falls Through, Debt Burdens
By ANDY FIXMER
There’s no relief in sight from the indigestion that continues to plague Irvine-based Prandium Inc., owner of the Koo Koo Roo, Hamburger Hamlet and Chi-Chi’s restaurant chains.
In the past several weeks, a deal to sell the company has fallen through, its long-time chief financial officer left and sales have fallen amid a big debt load.
In a quarterly filing with the Securities and Exchange Commission, the company warned that if its operating results don’t improve, it might not be able to continue “as a going concern.”
Since emerging from Chapter 11 bankruptcy protection in 2002, Prandium has closed 10 restaurants, mostly in its Chi-Chi’s operation. It has detailed plans to close another 11 Chi-Chi’s and a Koo Koo Roo.
The closures would bring Prandium’s holdings to 154 restaurants in 21 states, from a high of 313 in 1999. Twice in as many years, Prandium has seen deals fall through for the sale of its Hamburger Hamlet chain.
For the past year, Prandium has been under the direction of Hugh G. Hilton, brought on as interim chief executive and president when the company emerged from bankruptcy.
Hilton, part of a turnaround team from New York-based Alvarez & Marsal Inc., was joined by Timothy Matthew Kline, Prandium’s interim chief operating officer.
Hilton and Kline didn’t returned calls for this story.
William G. Knuff III, a Prandium director and principal at San Francisco-based Sutter Capital Management LLC, said things are on track, despite the company’s recent stumbles.
“The company is moving in the right direction operationally,” he said. “The question we have to ask ourselves now is do we have enough time and resources to see this company through its darkest hour.”
For the second quarter, Prandium reported a net loss of $4.7 million, compared with net income of $195.7 million a year earlier. (Last year’s results included a one-time, pretax gain on the retirement of $191.4 million in debt.)
Second-quarter sales were $58.9 million, down from $67.5 million a year earlier. Closed restaurants made up 30% of the lost revenue.
As part of its emergence from bankruptcy, Prandium agreed to be sold for $6.4 million in cash, plus the assumption of its $57.9 million in long-term debt as of June 29, to an investor group backed by The 180 Degree Group, Triyar Companies LLC and Goense Bounds & Partners.
Deal Fell Apart
That deal, contingent on an agreement being completed by July 31, fell apart when Goense pulled out, according to Tim Michael, an associate at Beverly Hills-based 180 Degree.
“We thought it was a deal (Goense) would be interested in,” he said. “But it wasn’t the type of deal they typically get involved with, and in the end they weren’t comfortable with it.”
Calls to Lake Forrest, Ill.-based Goense weren’t returned.
The 180 Degree Group still is interested in buying Prandium and is in talks with the company’s executives, according to Michael.
“It’s not 100% dead,” he said. “We’re still looking at it and trying to find ways to make the deal work.”
Prandium continues to struggle on other fronts.
Robert Trebing, its chief financial officer and a 23-year veteran of the company, resigned in August, telling Nation’s Restaurant News that his time at Prandium was a “constant sea of change.”
Trebing, who left to start as chief financial officer at Long Beach-based El Torito / Acapulco Restaurants Inc. in early September, resigned that position as well two weeks ago. Reached at his Laguna Niguel home, he declined comment.
Back at Prandium, debt has mounted and the company is looking to sell more restaurants.
In Los Angeles, brokers said Prandium is seeking restaurant operators to assume leases for a half-dozen Koo Koo Roo locations.
Most of the company’s Koo Koo Roo restaurants are in Los Angeles County, with two in Irvine and one in Costa Mesa.
“Clearly they are still wallowing in debt even though they are selling off chunks of their business,” said Randall Hiatt, principal of Irvine-based Fessel International Inc., a restaurant management firm. “I don’t think they have the wherewithal anymore to keep those restaurants refreshed in terms of capital, much less growing those businesses. And that’s going to reflect in decreased sales. It’s a pretty bad spiral for a restaurant company to be in.”
Prospective buyers might wait on the sidelines until Prandium is forced to sell assets before making any offers, Hiatt speculated.
Fixmer is a staff writer with the Los Angeles Business Journal.
