Quiznos Subs Smothered in $875M Debt

Quiznos made a big splash in local news this morning, but not just with its inaugural USA Pro Cycling Challenge kickoff in Colorado Springs. The Denver Post reported that the sub-sandwich chain is under financial pressure with ‘sharpened competition, waning sales and debt woes weighing it down.”

Quiznos may be headed for reorganization because of its $875 million debt. The reporter said the company has seen a sharp downturn in its number of stores and shrinking revenue from the outlets that remain open.

Quiznos declined to comment for the story but issued a statement to The Denver Post:

Quiznos has hired a financial adviser to assist in working constructively with its lenders to develop a proper financial structure for the company. We expect these activities will not adversely impact Quiznos' customers, franchise owners, employees or business partners. We fully expect this process to drive an outcome that will help the brand grow and prosper.

The reporter stated,

As Quiznos has fought to maintain market share, it has suffered lingering animosity from some franchisees who say profit margins are lean or nonexistent — due in part to a requirement that franchisees buy food at allegedly above-market prices from a Quiznos-mandated supplier network.

The company’s debt was increased when the franchise chain settled a franchisee class-action lawsuit by agreeing to pay up to $95 million. New Jersey attorney Justin Klein, who represented the store owners said,

If Quiznos were to default on its debt and file for bankruptcy reorganization, it would have a negative impact on the investment these franchisees have made in the company. It pretty much puts that investment into the toilet,

Much of Quiznos debt stems from a deal it made in 2006 when a private equity affiliate of JP Morgan Chase purchased 49 percent of Quiznos from a partnership led by Rick Schaden and his father Richard Schaden, investors in the sub-sandwich chain. The Schadens retained the 51 percent ownership.

Restaurant consultant John Gordon of San Diego-based Pacific Management Consulting Group was quoted saying, “It’s one of the biggest restaurant collapses in American history.” He said finding new investors, or persuading lenders to swap debt for equity is an uphill battle for Quiznos.

The trends are ominous. They're bad. Quiznos continues to close doors, and same-store sales continue to fall. The issue is, when does Quiznos hit bottom?

Gordon also told the newspaper that to his knowledge, Quiznos' owners have not contributed $50 million in new capital that lenders have been seeking as a good-faith commitment to facilitate the debt restructuring.

Read the full article:  Quiznos chain faces tough finance issues - The Denver Post

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