More debt and fewer customers may have led a Dallas company to become the fourth restaurant business in the country to file for bankruptcy this year.
Last Call Guarantor LLC, which has a 25-state footprint that includes 48 Fox & Hound restaurants, 23 Champps locations and nine Bailey’s Sports Grille units, filed for Chapter 11 bankruptcy Wednesday. The company is saddled with debt between $100 million and $500 million. It listed assets of $10 million to $50 million.
Last Call joins a growing list of restaurant companies headed to bankruptcy court. On Monday, Nashville chain Logan’s Roadhouse filed for Chapter 11 after slumping traffic and sales in the first half of 2016.
Craig Weichmann, founder of Fort Worth-based Weichmann & Associates, an investment banking consultancy specializing in restaurants, attributes the spike in filings to a combination of debt and lower same-store sales. With interest rates low, restaurant companies have been taking on more debt, he said. But as new concepts sprout up, older restaurants are losing traffic and can’t sustain those larger debt loads.
“We’ve been in a sustained period of time, much like in 2007 and 2008, where the number of restaurant openings has heated up and we’ve had over-expansion,” Weichmann said. “And if you go out, do you want to go to the old place or new place? So same-store sales have been down, especially in the casual dining segment.”
Both Hollywood Park, Texas-based Buffets LLC, which operated more than 300 restaurants in 35 states, and Austin-based Fired Up Inc., the operator and franchisor of roughly 100 John Carino’s Italian restaurants, filed in March.Some concepts are resorting to raising prices, which further deters customers. According to a report by KeyBanc Capital Markets, since 2005, the average casual dining check has risen almost 20 percent, while traffic has dipped nearly 30 percent.“Sometimes when operators start losing traffic, they start pushing other buttons like raising prices, and that becomes what’s known as the death spiral,” Weichmann said. “If you resort to raising your prices, it takes away the value proposition. Consumers are smart and resourceful.”This isn’t the first time debt has eaten away at Last Call. According to court documents, Last Call filed for Chapter 11 in December 2013, citing $119 million in debt to more than 35 creditors. At that time, it operated 101 restaurants.It was purchased out of its first bankruptcy by New York private equity firm Cerberus Capital Management in February 2014 for $125 million. But bankruptcy may not be the end of the road for Last Call or other restaurant companies. Some are using Chapter 11 filings to restructure and get rid of unprofitable holdings.
“In old days, filing for bankruptcy was the end of the world. In reality, there comes a time when filing for bankruptcy permits a group to come out sustainable and healthy,” Weichmann said. “About 20 to 30 of bankruptcies filed come out with a new life.”