The leading Mexican restaurant operator in the United States filed for bankruptcy on Tuesday and put its El Torito, Chevys Fresh Mex and Acapulco Mexican Restaurant chains up for sale.
Real Mex Restaurants Inc REALM.UL said in documents filed in Delaware's bankruptcy court that it would soon run out of money. The company said it was suffering from a sluggish economy, high lease and debt obligations and sharp increases in food costs.
An affiliate of Sun Capital Partners Inc holds the largest stake in the company, which operates or franchises more than 200 restaurants, mostly in California.
Several other restaurant and food companies have struggled as food costs have risen and the U.S. economy has limped out of a deep recession, with prepared food maker Chef Solutions Holdings LLC also seeking bankruptcy protection on Tuesday.
Restaurant chains including Perkins & Marie Callender's Inc, Sbarro Inc, Fuddruckers and Charlie Brown's Steakhouse have recently filed for bankruptcy, as did chicken producer Allen Family Foods Inc.
Friendly's, another Sun Capital investment, is also reported to be preparing to file for bankruptcy.
Sun Capital did not immediately return a call seeking comment.
Real Mex said it had assets and liabilities in the range of $100 million to $500 million, according to a court filing.
The Cypress, California-based company traces its roots back to the first El Torito restaurant which opened in 1954 in Encino, California.
The company has been hard hit by the housing market crash and economic slump in California. Annual revenue has dropped from $553 million in 2008 to $478 million last year.
The company said it plans to market and sell itself over the next three months. While it did not name an initial, or stalking horse, bidder, as bankrupt companies often do, it said it could sell the business to holders of its second-lien notes.
Those creditors include Tennenbaum Capital Partners, Credit Suisse Asset Management and JPMorgan Investment Management Inc, according to court documents.
Real Mex said in court documents it was down to its final $1 million in cash. The company planned to ask Delaware's bankruptcy court for approval of a $49 million bankruptcy loan, or DIP loan, from General Electric Co's (GE.N) GE Capital to pay employees and other costs while in bankruptcy.
A source close to the negotiations said Z Capital, a major holder of an unsecured loan to the company, was preparing to ask the court to approve its competing bankruptcy loan -- a rather unusual request in a bankruptcy.
A hearing to consider the bankruptcy loan and other so-called first day motions is scheduled for Wednesday, according to a company spokesman.
PREPARED FOOD MAKER BANKRUPTCY
Chef Solutions also filed for bankruptcy on Tuesday in Delaware. The company's Orval Kent business is the second-largest maker in North American of prepared food, according to court documents.
The company provides side dishes and deli salads for retailers such as Wal-Mart Stores Inc (WMT.N), Trader Joe's and Costco Wholesale Corp (COST.O), but was pinched between rising costs and weak demand.
Chef Solutions was purchased from Lufthansa in 2004 by funds associated with Questor Management Co, a firm founded by turnaround guru Jay Alix of AlixPartners and investment banker Dan Lufkin of Donaldson, Lufkin & Jenrette.
Questor declined to comment.
In its bankruptcy, Chef Solutions proposed a quick sale to a venture formed by Mistral Capital Management LLC and Reser's Fine Foods Inc, which makes salads and side dishes.
The two would bid about $62 million in a mixture of cash and debts owed to Mistral as a creditor to Chef Solutions and cash. The pair also agreed to assume some liabilities.
The proposed sale is subject to higher offers and must be approved by the bankruptcy court. The money raised will help pay off Chef Solutions debts.
The company estimated its assets and debts at between $100 million and $500 million.
The cases are In re: Real Mex Restaurants Inc, Case No. 11-13122, and In re: Chef Solutions Holdings LLC, Case No. 11-13139, U.S. Bankruptcy Court, District of Delaware.