Case Study in Turnaround & Restructuring

Background

$8MM multiple store, national food chain franchisee unable to make bank loan payments, in default of franchise agreements with default notices issued for all locations and shareholder's personal resources depleted.     

Need

Assess whether, or on what basis, the franchisee remains viable; whether it could cure the various payment defaults; whether the business is worth more broken up and sold or continuing to operate under various store configurations.

Process (Diagnostic)

Given seasonal nature of the business we completed a 52-week and daily cash flow for each store contribution and determined cash flow high and low points.

Completed store by store profitability analysis to assess which stores were profitable and which ones needed to be closed because they provided no contribution to franchisee overhead.  Determined what each store was worth, including those with owned vs. leased real property facilities.

Developed a series of sensitivity analysis to assess different combinations of rents, royalty and advertising rates to be paid to franchisor to cure defaults and avoid further bank financing.

Working with company legal counsel negotiated a Chapter 11 plan of re-organization with franchisor, lenders and suppliers.

Result

The Company successfully restructured all its liabilities and emerged from Chapter 11 bankruptcy.  The franchisor agreed to allow continued operations of remaining stores and extended the franchise agreements, while reducing certain marketing fees to improve store profitability.  The bank likewise agreed to modify and extend its debt while the owner has the prospect of re-financing or selling the remaining locations at a later date.