Uno's Pizza

Uno Restaurant Chain Talks
With Lenders on Payment
Facing Pinch as Customers Stay Home,
Company to Defer Interest Due on Friday
By JEFFREY MCCRACKEN and JANET ADAMY
Wall Street Journal
http://online.wsj.com/article/SB121859719364035879.html?mod=djkeyword

The parent of Uno Chicago Grill, a chain of 200-plus pizzeria-themed restaurants, will skip a bond payment on Friday as it tries to negotiate more financial breathing room amid increasingly difficult times for sit-down eateries, according to two people familiar with the matter.

Uno Restaurant Holdings Corp. -- whose restaurants grew from a single Chicago landmark and are predominantly in East Coast states like New York, Pennsylvania and Massachusetts -- is one of a growing number of regional and national restaurant companies squeezed by falling sales, rising food costs and burdensome debt.


Boston Globe/Landov
Uno Chicago Grill and other casual chains are feeling a squeeze.
Now based in Boston, Uno employs more than 5,500 people at company-owned sites and thousands more at its franchised restaurants. It was acquired in a leveraged-buyout in January 2005 by the private-equity fund Centre Partners and members of management.

Uno faces a $7.5 million interest payment due Friday on its $141 million in senior secured notes. It plans to defer that payment and is in talks with six bondholders for a waiver or an amendment, say two people familiar with the talks.

Uno's decision not to make the payment reflects its tight liquidity. A default often allows lenders to impose tighter terms or higher interest rates, moves that further squeeze an already struggling company.

Uno Chief Financial Officer Louie Psallidas said his chain has 30 days before it will be in default and will "avail ourselves of that time as we try to get an appropriate balance sheet for the company."

Uno has hired investment banking firm Houlihan Lokey Howard & Zukin as its financial adviser to negotiate with bondholders.

"We are not in any imminent danger of filing for bankruptcy," Mr. Psallidas said.

Uno sales held up until late 2007, but have slid the last three quarters. Same-store sales were down 7.7 percent in the first quarter of 2008, according to Moody's Investors Service.


Other chains, such as Chevys Fresh Mex and the home-style Perkins and Marie Callender's chains are also in talks with their lenders, say several people familiar with the companies. These chains, which combined have about 1,000 sites across the country and 40,000 employees, also face difficulties. All have had earnings slow as diners cut back on eating outside their homes. At the same time, the companies are managing heavy debt loads placed on them by private-equity funds. They have many older sites and older brands, but limited funds to update menus or buildings.

During the first half of 2008, same-store sales at midpriced sit-down restaurants declined an average of 1.1%, according to Knapp-Track, which measures sales at 10,000 restaurant outlets.

In the last few months, sit-down chains such as Bennigan's, Steak and Ale, and Vicorp Restaurants Inc.'s Bakers Square and Village Inn chains have filed for liquidation or bankruptcy protection, frequently moving to shutter hundreds of sites and cut thousands of jobs.

"Those other restaurants that filed, their concepts haven't remained relevant. Ours has," said Uno's Mr. Psallidas.

Long known for deep-dish, Chicago-style pizzas, Uno moved in recent years to a more expansive menu of grilled, fried and sautéed fare, including Angus beef steaks and Bolognese pasta, and drinks such as pomegranate margaritas.

Another chain trying to negotiate more financial breathing room is the Cypress, Calif.-based Real Mex Restaurants Inc., which owns the Chevys, El Torito Grill, Acapulco Mexican restaurants and other regional chains, according to three people familiar with the talks. It is one of the largest operators of full-service Mexican restaurants in the country with about 200 restaurants and 12,700 employees in more than a dozen states.

Real Mex was acquired in August 2006 for $359 million by private-equity firm Sun Capital Partners, which has had success with other chains like Bruegger's Bagels and Garden Fresh restaurants.

Sun is negotiating with a key lender, the San Francisco hedge fund Farallon Capital, to restructure the Real Mex balance sheet and to amend its agreement so it doesn't violate covenant terms at the end of the year regarding leverage and earnings on one piece of debt. It has a $5 million coupon payment due in October on its $105 million in senior debt, according to Moody's.

Real Mex's three main chains are heavily concentrated in California, with about 70% of its restaurants there. California has been particularly hard hit by the subprime mortgage crisis. It also has a higher-than-average minimum wage, increasing labor costs for Real Mex.

The operating and liquidity situation is also difficult for Perkins & Marie Callender's Inc., the parent company of two midpriced chains that cater to families with comfort foods like pancakes and pies.

They are owned by private-equity fund Castle Harlan and are based in Memphis, Tenn. Those chains have been closing locations over the past few years.

The two chains, which have more than 600 owned or franchised restaurants in 35 states, employ more than 25,000 people, mainly in the Midwest. The chains lost a combined $21.2 million on 2007 sales of $593 million, according to its Web sites and public filings. The chain is also seeking a waiver or amendment from its lenders to avoid a covenant breach, according to two people familiar with the matter.

A spokesperson for the Perkins & Marie Callender's chains declined to comment.

Write to Jeffrey McCracken at jeff.mccracken@wsj.com and Janet Adamy at janet.adamy@wsj.com