Quiznos files for Chapter 11: wsj

The maker of toasted subs said it would continue operating while it works to implement a debt-restructuring plan and make operational improvements.

“The actions we are taking are intended to enable Quiznos to reduce our debt, execute a comprehensive plan to further enhance the customer experience, elevate the profile of the brand and help increase sales and profits for our franchise owners,” Stuart K. Mathis, Quiznos’s chief executive, said Friday in a news release.

Court papers show that under the restructuring plan, Quiznos’s senior lenders would trade more than $444 million in debt for all of the equity in the restaurant chain, subject to dilution.

The lenders, which have offered $15 million to finance the company’s restructuring, also would get $200 million in new debt under the so-called prepackaged bankruptcy plan.

Court papers show that at the time of the bankruptcy filing, all of the senior lenders entitled to vote on the prepackaged plan had thrown their support behind the plan. Such plans allow for speedier and cheaper Chapter 11 proceedings.

The plan further calls for Quiznos’s unsecured creditors, including junior lenders owed $173.8 million, to receive equity or a share of any proceeds from litigation against certain “officers, members and related parties” of Quiznos related to the company’s 2012 out-of-court restructuring, which Quiznos says left it with an “unsustainable debt burden.”

Current equity holders like Avenue Capital Management and Fortress Investment Group, which also hold Quiznos’s junior debt, would see their shares canceled and wouldn’t receive any payment for those shares as part of the restructuring.

Quiznos has asked the U.S. Bankruptcy Court in Wilmington, Del., to approve its restructuring plan at an April 24 hearing.

Quiznos’s filing, which The Wall Street Journal previously had reported was in the works, comes two years into a major turnaround effort that included an out-of-court debt restructuring and a management shake-up.

The chain opened its first restaurant in 1981 in Denver. The company went public in 1994 but was taken private in 2001. In 2006, court papers show, affiliates of J.P. Morgan Partners LLC acquired a 49% stake in the company in a leveraged buyout that saw Quiznos take on $950 million in debt.

In 2012, Quiznos’s lenders agreed to an out-of-court debt restructuring in which creditors Avenue and Fortress became the company’s primary owners. But turnaround efforts continued, as the company grappled with a rapidly expanding franchise business driven by franchisees with “little or no relevant experience,” which Quiznos said in court papers caused its brand to suffer and sales to slip.

While a Chapter 11 filing will give the company much-needed flexibility on leases and unattractive contracts, Quiznos must repair its damaged relationship with franchise owners, who say they are being squeezed out of business by the high cost of operating a Quiznos outlet.

The company has shut down thousands of locations in recent years, leaving it with nearly 2,100 locations around the world. All but several of those are independently owned and operated by franchisees.

Mr. Mathis said Quiznos’s business plan will aim to support franchisees, including reducing food costs, starting a rebate program and financing restaurant improvements.

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