The casual dining company filed for Chapter 11 protection in Delaware along with more than 30 affiliates. But Landry’s, the Houston-based restaurant group that operates Joe’s Crab Shack, Rainforest Cafe, and Morton’s steakhouses, has already offered to pay $40 million for the business and to assume certain liabilities, court documents show. Houlihan’s listed about $80 million in assets and $77 million of liabilities.
A Chapter 11 filing lets Houlihan’s keep its doors open and its staff of 3,450 employed while it works out a recovery plan or sale. Landry’s offer is a so-called stalking-horse bid, which sets a floor for any other offers that emerge in a bankruptcy sale process.
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Landry’s intends to offer employment to “many” of its current employees, court documents show. Lenders including CIT Bank agreed to provide $5 million to help finance the bankruptcy, according to court documents.
Sale date
“We expect the process to be seamless for our guests, team members, and vendors,” Houlihan’s Chief Executive Officer Mike Archer said in a statement. Houlihan’s expects the sale will be completed by the end of this year.
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Established in 1992, Houlihan’s is based in Leawood, Kansas and operates 47 restaurants in 14 states under names that include J. Gilbert’s, Bristol Seafood Grill, and and Devon Seafood Grill, along with 23 franchises that weren’t included in the filing.
Houlihan’s is currently owned by affiliates of York Capital Management, which bought the company about three years ago with the help of a secured credit line totaling more than $50 million, according to a statement at the time.
But the chain ran short on cash in the face of changing consumer preferences, senior management changes, unfavorable leases, and the rapid growth of costly third-party delivery services, Chief Restructuring Officer Matthew Manning said in a court declaration. An ill-timed buyout of its largest franchisee in May 2018 added more pressure, he said.
“Houlihan’s is caught up in the casual dining slump not unlike Chili’s and Fridays and Applebee’s,” said Darren Tristano, CEO at Foodservice Results, a restaurant consulting firm. “For over 10 years these concepts have really not differentiated themselves. Their menus appear to be very similar.”
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The company hasn’t paid any interest to holders of its loans since December of last year, and it closed 12 money-losing locations in the run-up to Chapter 11 after failing to get concessions from landlords, Manning said. A representative for York Capital didn’t immediately respond to a request for comment.
Rising costs
Traditional sit-in restaurants have come under pressure as consumers increasingly opt for fast-casual options. Rising minimum wage thresholds don’t help either, with Restaurants Unlimited partly blaming such hikes for its July bankruptcy. Landry’s bought that West Coast chain out of bankruptcy, too, along with Joe’s Crab Shack and a Western-themed chain called Claim Jumper after they sought court protection.
“They’re looking for value,” Tristano said. “They’re looking for restaurants that are in dire need of capital. They’re looking to sort of stop the bleeding and maintain the restaurants. The economies of scale can support reducing costs.”
The company reported $202 million in revenue for fiscal year 2019 and generated about $9 million of earnings before interest, taxes, depreciation, and amortization, Manning said. Piper Jaffray & Co. was hired in June to handle the sale process.
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