Fortress offers takeover of 127 Buffets restaurants

NEW YORK (Reuters) - An affiliate of Fortress Investment Group Inc (FIG.N) offered on Monday to take over 127 restaurants from bankrupt restaurant operator Buffets Holdings Inc, according to a court filing.

Buffets, operator of the Ryan's and Old Country Buffet chains, has asked the U.S. bankruptcy court in Delaware whether it can reject a master lease owned by the Fortress affiliate on 127 Ryan's restaurants and close the stores.

In the filing, Fortress said it believes the restaurants generate $40 million a year in cash flow, after rent expenses, making those stores "the strongest of the Ryan's locations."

Fortress said it would rather take over the operations than have Buffets reject the lease and shut down the restaurants.

Buffets, the largest U.S. steak-buffet restaurant company, filed for Chapter 11 bankruptcy protection from creditors in January, saying core customers had cut discretionary spending.

A spokesman for Buffets declined to comment on the Fortress filing, but Buffets said earlier this month that it believed the master lease was "onerous," and provided few options for poorly performing restaurants.

The 127 restaurants covered in the master lease represent about half of the restaurants Buffets acquired in 2006 when it bought Ryan's for $876 million, including debt.

They also represent about one-fifth of the 569 restaurants that Buffets runs in the United States.

About 7,500 part-time and full-time employees work at the restaurants affected by the master lease.

The filing did not mention a price that Fortress would consider paying to take over the restaurants' operations.

A Fortress spokeswoman declined to comment.

"WILLING TO BE FLEXIBLE"

The Fortress filing is the latest step in the battle over the Ryan's restaurants.

Fortress said in the filing that it had made a bid for the entire Ryan's chain in 2006, but was beat out by Buffets.

Buffets said earlier this month it had reached an agreement to reduce rents at 105 stores it leased from Realty Income Corp (O.N) but that talks with Fortress had not been as productive.

The company said it would still like to see a consensual resolution.

Fortress is willing to be flexible on some terms of the master lease but not at a significant loss to its investment, according to a person familiar with the talks.

According to the filing, Fortress has interests in four other restaurant groups.

Fortress "and its affiliates are organizing the necessary resources to be able to take over operations, and have reached out to (Buffets) -- thus far, without success -- to effect an orderly transition," it said in the filing.

Fortress said in the filing that if Buffets went through with plans to close the 127 stores, it was possible Buffets would not be able to keep the remaining Ryan's stores open.

The court ruled in May that Buffets could not pick and choose restaurants to close within the master lease, but rather would have to assume or reject the lease as a whole.

Earlier this month, Buffets filed its subsequent motion seeking to reject the lease and close the restaurants by the end of August. The court is set to hear arguments on the motion at a hearing next week.

(Reporting by Emily Chasan, editing by Gerald E. McCormick and Ted Kerr)