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Quiznos Could File Bankruptcy by Monday Making Avenue Capital's Investment Toast

Quiznos Could File Bankruptcy by Monday
Photo by bmm

NEW YORK – Hedge-fund billionaire Marc Lasry is performing a high-wire act negotiating with lenders on another restructuring deal of Quiznos’ $600 million debt.

The New York Post reported yesterday that last Friday the lenders gave the troubled sub sandwich chain one week to reach an agreement. Regardless if they strike a deal or not, Avenue Capital likely stands to lose most or all of its equity stake in the ailing firm.

It states, “Quiznos, whose toasted subs once made it one of the fastest-growing sandwich shops in the country — spreading out to more than 5,100 locations in 2006, according to Nation’s Restaurant News — has been suffering under a controversial franchisee plan for years and in December missed a loan payment putting it in default.”

Post reporter Josh Kosman said by 2012, Quiznos, which Lasry took control of after an earlier debt-for swap, was down to 2,300 stores. Currently, there are less than 1,000. Sources stated, “Talks with the lenders, including Howard Marks’ Oaktree Capital, Wes Edens’ Fortress Investment Group and Caspian Capital Advisors, could result in the creditors taking control of the chain.”

One store owner told the Post, “If [after a possible bankruptcy] they are forced to maintain all their money streams, including American Food Distributors, then we are toast. If we can cancel and restructure contracts and terms, including AFD, then we have a chance.”

The Post said, . . . “most senior lenders, whether or not they reach a deal with Lasry, will likely put the chain in bankruptcy so they can clean up Quiznos’ balance sheet.”

A former store owner told Blue MauMau that he doubts the franchisor’s bankruptcy will change anything other than accelerate restaurant closings once franchise owners figure out the trustee could care less about the operators. “His job is to recover as much as possible. That is where they make their money. Long term survival of stores will not be on his radar, but they are used to that,” the former franchisee said.

Restaurant analyst John Gordon commented that restaurant foundations for success are built upon simple math.

"If the store level economics are poor, franchisees run out of money and the store fails. If many stores fail, customers notice that and pull back their consumption. If too many stores fail, franchisor royalties and resulting cash flow falls. This then makes franchisor debt service problematic, or impossible, particularly for bloated, pre-2008 great recession debt levels. The resulting debt restructuring or Chapter-11 outcome then depends on whether math of the required remaining debt service matches the true economic reality of the brand going forward.”

Gordon added, “This outcome demonstrates that how the store economic foundation is built, matters."   

Blue MauMau tried to contact Quiznos CEO Stuart Mathis for comment, to no avail. One source informed us that Mr. Mathis was attending the International Franchise Association’s annual convention in New Orleans this week. As a “premium franchisor” member of IFA, the chief executive has been participating in the trade association’s convention activities, including its VetFran program committee meetings. Quiznos waives its franchise fee in selling its franchised restaurants for qualified veterans.

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