Friendly's Ice Cream Melts Down

Private investment firm Sun Capital Partners sees one more of its brands melt down. This time it's Friendly's Ice Cream.

Yesterday, the Wall Street Journal reported ($$) that Friendly's Ice Cream Corp, franchisor to 500 family dining restaurants, is about to file Chapter 11 bankruptcy.

The company's struggles are familiar to many restaurant chains, from Quiznos to Sbarro, that have endured a similar squeeze.

Friendly's, which carries more than $250 million in debt, is in talks with Wells Fargo & Co. for about $70 million in so-called debtor-in-possession financing that would keep it afloat during bankruptcy proceedings, the people said. The bankruptcy financing would consist of about $25 million in new funds and other existing debt that would "roll up" into the new loan, the people said. Wells Fargo declined to comment.

Sun Capital Partners Inc., the Boca Raton, Fla., buyout firm with a history of restaurant deals, paid $130.81 million in cash for all of Friendly's stock in 2007. The private-equity firm is also a Friendly's creditor. Some of Sun's other investments include Boston Market Corp. and Real Mex Restaurants. Real Mex, like Friendly's, is pursuing a debt restructuring. Sun could put in a "credit bid" for Friendly's by forgiving debt in exchange for retaining ownership, the people said...  Friendly's hired law firm Kirkland & Ellis and Zolfo Cooper, a turnaround advisory firm, to negotiate with creditors and prepare its bankruptcy filing, the people said.

Reporter Sarah Lockyer of Nation's Restaurant News adds the following background information.

Sun Capital owns 10 restaurant brands, including Boston Market, Smokey Bones Bar & Fire Grill and Fazoli's. Another holding, Real Mex Restaurants, which operates the Chevys, El Torito and Acapulco brands, is in the midst of a financial restructuring.

Readers of my columns know I am no fan of conglomerate franchising companies, even when they are all restaurant concepts. Private equity firm Sun Capital manages these restaurant brands through holding companies. These conglomerates are the antithesis of focus and edge.