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Judge Confirms Quiznos Bankruptcy Restructuring Plan

BMM_6098 WILMINGTON, Delaware – U.S. Bankruptcy Judge Peter J. Walsh approved Quiznos’ plan for reorganization in the hands of its senior lenders, including Oaktree Capital Management LP.

The Wall Street Journal reported yesterday that the plan will allow the franchisor’s debt to be trimmed by more than $400 million.

In his order, Judge Walsh also stated that debtors Avenue Capital and Fortress Investment Group could pursue legal claims against former Quiznos executives, under the Richard “Rick” Schaden management group.

Quiznos has tried to financially restructure the company twice since it was taken over by the majority hedge fund owners in January 2012, trying to keep it solvent in spite of its enormous debt, multiple store closures and declining sales. The sandwich chain filed for a prepackaged Chapter 11 bankruptcy plan on March 14, 2014 after negotiating a deal with senior lender to swap $444 million in senior debt for $200 million in new debt and a 70 percent stake in the restructured Quiznos company.

In a Quiznos news release Monday, CEO Stuart K. Mathis said, “We are pleased to have reached this important milestone and look forward to completing the financial restructuring process, which has created a stronger foundation for us to execute our comprehensive strategic plan.”

While there were no objections from the parties at Monday’s 20 minute court session, that was not the case a week ago.

Although current stockholders Avenue Capital Management and Fortress Investment Group are slated to have their equity interests wiped out, they have made it known that they will sue former Quiznos executives under former owner/CEO Richard Schaden and his management team. The hedge fund companies that took control of the franchise chain allege they were deceived when they converted their debt to equity under an out-of-court restructuring in January 2012.

The Schaden group argued in court filings that they did not deceive the hedge fund companies. They say they made a deal with Avenue Capital and Fortress to clear The Schaden group of any future liability as part of their 2012 restructuring. They had asked Judge Walsh to reject the restructuring plan.

But after announcing last week that it would provide a $2 million cash recovery for unsecured creditors, Quiznos said in court papers that it had resolved all the objections to its reorganization proposal. Those creditors, a group of suppliers, landlords and franchisees, had previously tried to slow the sandwich chain's bankruptcy case.

CEO Mathis also stated, “We thank our senior lenders, as well as the committee representing our general unsecured creditors and their advisors, who worked with us constructively to position us to complete our financial restructuring in an expedited manner."

While franchisees were expecting a corporate conference call yesterday with an update on the bankruptcy, they instead received a memo announcing that the reorganization plan will be unveiled in the weeks to come.

Litigation to move forward

Judge Walsh also stated in his order that a “Specified Litigation Agreement” is appropriate to enable Avenue Capital and Fortress, reorganized debtors, to pursue their claims jointly, and provide for the distribution of any proceeds from the litigation. He said the litigation agreement is an essential element of the bankruptcy plan and is in the best interest of debtors, their estates and holders of claims and interests.

The former executives also filed a verified statement on Monday in connection to the bankruptcy. The client group, represented by Jones Day and Young Conaway, includes Rick Schaden and his father Dick Schaden, Patrick E. Meyers, John M. Moore, Greg MacDonald, and Cervantes Master LLC. The statement is for the primary purpose of “addressing claims threatened by debtors, which are listed in the document.”

The next hearing will be on June 6, 2014.

State of Quiznos going into bankruptcy

Although Quiznos did not state in its news release yesterday how many stores are currently operating in the United States, Quiznos 2014 FDD states that the sandwich chain had 1435 as of December 2013. There were 2880 restaurants operating in the United States doing the period of January 1, 2013 to December 31, 2013. The FDD shows of that total 137 units had been purchased but not opened. And a total of 546 left the system or did not communicate to the corporate office (of which 26 stores never opened) during the 2013 period. 

Blue MauMau has learned from an informed source that 22 restaurants operating in Florida under Hess gasoline stations closed in the last few days. The source said Hess is ending its contractual agreement with Quiznos, which was planning to open approximately 600 restaurants, as confirmed by a former insider.

Wall Street JournalArticle:  Bankruptcy Judge Approves Quiznos Restructuring Plan

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Related Articles:

· Quiznos Wins Bankruptcy Court Approval of Its Recovery Plan (1)

· Ex-Quiznos Executives File Objection to Hedge Fund Lawsuits (BusinessWeek)

· Quiznos Postpones Key Hearing on Bankruptcy

· Fortress to Own Biggest Stake in Bankrupt Quiznos

· Quiznos' Attorney Shows Lack of Transparency in Settlement

· Quiznos settles dispute with defunct franchisees (Denver Post)

· Quiznos disclosure shines light on settlements, litigation | BMM

· Avenue Capital May File Claim against Quiznos Schaden Group for Misconduct

· Quiznos Bankrupt!

· Quiznos Reorg Sees Lawsuit Over 2012 Recap Misrepresent

· Why Do Franchisees Need a Bill of Rights?

· Lessons Learned from Quiznos Franchise Litigation

· Litigation that Franchisors Must Disclose

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Quiznos Chapter 11 ruling May 12 2014.pdf3.57 MB
FINAL+Quiznos+Confirmation+Release+to+051214.pdf248.05 KB
Schaden Group reaffirmation May 12 2014.pdf29.16 KB
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