HRI Holding Corp. – Holding Company for Houlihan’s Restaurants Files Chapter 11, Landry’s to Serve as Stalking Horse with $40mn Bid

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November 14, 2019− HRI Holding Corp. and 38 affiliated Debtors (d/b/a as Houlihan's Restaurants, Inc. “HRI or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-12415. The Debtors, who own and operate forty-seven restaurants under the Houlihan's, J. Gilbert’s, Bristol and Devon brands, are represented by Adam G Landis of Landid Rath & Cobb LLP. Further board-authorized engagements include (i) M-III Advisory Partners as financial advisor (with Matther R. Manning to serve as Chief Restructuring Officer), (ii) Piper Jaffray & Co. as investment banker, (iii) Hilco Real Estate, LLC as real estate advisor and (iv) Kurtzman Carson Consultants LLC as claims agent.

The Debtors are 93.4% owned by certain affiliates of York Capital Management (collectively, the “Sponsor”) as noted in the organizational chart below. Further to a forbearance agreement entered into with prepetition lenders in June 2019, directors and officers appointed by the Sponsor were required to resign.

The Debtors’ lead petition notes between 5,000 and 10,000 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $50.0mn and $100.0mn. The Manning Declaration (defined below) further provides that "as of the Petition Date, the Debtors have assets totaling approximately $79.8mn and consolidated outstanding liabilities totaling approximately $76.9mn." Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) US Foods, Inc. ($959k trade debt), (ii) Sysco Food Services LLC ($631k trade debt) and (iii) The Hartz Group, Inc ($366k trade debt).

In a press release announcing the filing, the Debtors advised that they have "executed an Asset Purchase Agreement (the 'Agreement') with Landry's, serving as Stalking Horse Bidder to acquire substantially all of the Company's assets, subject to higher or otherwise better offers….To support operations during the proceedings through the closing of the sale, the Company has received new financing commitments that will provide sufficient liquidity to fund the business. Franchise Restaurants will continue to operate independently and are not included in the sale or chapter 11."

Chapter 11 Objectives

In a declaration in support of the Chapter 11 filing (the “Manning Declaration”) [Docket No. 2], Matthew R. Manning, the Debtors' Chief Restructuring Officer, summarized the Debtors' Plan objectives as follows: "Ultimately, following its evaluation of all available options, the Company determined that filing for Chapter 11 protection, obtaining postpetition financing and pursuing an orderly sale of its assets in a controlled, court-supervised environment is the best available option to maximize value for the Company and its stakeholders. The Debtors believe that the Chapter 11 process, including the proposed sale of substantially all of their assets to the Stalking Horse Bidder [Landry's] subject to higher or otherwise better bids pursuant to Bankruptcy Code section 363 (the 'Sale'), will be seamless for its customers, trading partners and vendors, result in minimal disruption to its operations, allow the Company to strengthen its financial structure, and position it for significant future growth.

363 Sale 

Further to marketing efforts commenced in August 2019, the Debtors have reached agreement with Landry’s, LLC (“Landry’s) further to which Landry’s has agreed to purchase substantially all of the Debtors’ assets for $40.0 million in cash and to serve as a stalking horse bidder in a section 363 auction/sale process.

Debtor-in-Possession (“DIP”) Financing 

The Debtors’ prepetition Lenders have agreed to make available approximately $5.0mn in DIP financing and to allow the Debtors to access cash collateral.

Prepetition Debt

  • Credit Agreement – The Debtors are party to a December 2015 Credit and Guaranty Agreement with CIT Bank, N.A. as Administrative Agent which provides for a term loan commitment of $42.2mn, a revolving credit commitment of up to $3.0mn and a delayed-draw term loan commitment of $7.5mn (together, the “Loans”). The maturity date on the Loans is December 17, 2020 and as of the Petition date the outstanding balance of the Loans was approximately $42.3mn plus accrued and unpaid interest of approximately $4.6mn. 
  • Unsecured Debt – As of the Petition date, the Debtors estimate that their unsecured debt aggregates approximately $30.7mn, consisting of trade debt in the approximate amount of $8.2 million and other liabilities in the approximate amount of $22.5mn. 

Events Leading to the Chapter 11 Filing

The Manning Declaration provides the following detail as to the Debtors’ slide into bankruptcy: “Various industry headwinds, senior management changes and shifts in investment philosophy eventually left the Company without the funds needed to grow their businesses and absorb the costs associated with the shifting labor market, unfavorable leases, and the rapid growth in costly third-party delivery. 

Additionally, in May 2018, the Company acquired seventeen (17) Houlihan’s restaurants from A.C.E. Restaurant Group, Inc., which at the time was the Company’s single largest franchisee. The premise of the acquisition was to bring the units in-house and refresh certain of the locations, but the Company’s liquidity constraints prevented that work from being accomplished. Consequently…this ‘bolt-on’ acquisition has not yet achieved its potential. 

… the Debtors’ capital and debt structure, combined with its limited liquidity, has severely constrained growth and jeopardized the Debtors’ ability to fund current operations. The Debtors have not paid any interest or debt service to the holders of their Loans since December 2018, and certain of their rent obligations and other vendor payments are past due. The Company has been challenged by unsustainably high occupancy costs at many of its locations, accounting for approximately $3.5 million of annual EBITDA losses. Prior to the filing of these Chapter 11 Cases, and after unsuccessful negotiations with certain landlords regarding rent and other lease concessions, the Company closed twelve (12) of its unprofitable restaurants. 

As a result of certain alleged defaults under the Credit Agreement as asserted by the Agent in March and April of 2019, and the Company’s disputes with respect thereto, the Company, the Lenders and the Sponsor entered into that certain Forbearance and Sale Support Agreement dated June 21, 2019 (as subsequently amended or modified, the ‘FSSA’). Pursuant to the FSSA, the Lenders agreed (among other things) to forbear from exercising remedies and the Company agreed (among other things) to engage an investment banker to commence a sale process in connection with the potential sale of all or substantially all of the Company’s capital stock, assets and/or businesses during the Forbearance Period (the ‘Sale Process’) which, absent extension, would expire on November 15, 2019. In connection with the FSSA, the Sponsor’s board members and officers resigned from all of their positions, two (2) independent directors were nominated and appointed to the board of HDJG (the Debtors’ ultimate holding company), I was engaged as CRO, and the existing executive and management teams continued day-to-day operation of the Company’s businesses."

About the Debtors

Formed in September 1992 under the name “Gilbert/Robinson, Inc.,” and headquartered in Leawood, Kansas, the Debtors today own and operate forty-seven restaurants in fourteen states (Connecticut, Florida, Illinois, Indiana, Kansas, Michigan, Missouri, Nebraska, New Jersey, New York, Ohio, Pennsylvania, Texas, and Virginia).

The Company’s thirty-four Houlihan’s Restaurant + Bar (a/k/a Houlihan’s) restaurants are leaders in the “polished casual” dining space, offering a unique, made from scratch menu and energetic bar scene; its six J. Gilbert’s Wood-Fired Steak + Seafood (a/k/a J. Gilbert’s) restaurants offer a modern twist on the classic American steakhouse, crafting high-quality, wood-fired steaks in an upscale yet rustic and warm environment; its six seafood restaurants (three Bristol Seafood Grill (“Bristol”) and three Devon Seafood Grill (“Devon”)) feature high quality ocean fare delivered with simplicity in an elegant, approachable fine dining setting; and its newest concept, Make Room for Truman, offers classic, time-honored recipes prepared with modern techniques, served in an authentic atmosphere. The Company also has twenty-three franchised locations, twenty-one Houlihan’s and two Bristol and Devon, in California, Georgia, Illinois, Indiana, Iowa, Kansas, Maryland, Minnesota, Missouri, Pennsylvania, Texas, and Virginia. 

About Landry's

The Buyer's website states: "As a group, Landry’s owns and operates more than 600 properties, including more than 60 unique brands such as Landry's Seafood, Chart House, Saltgrass Steak House, Bubba Gump Shrimp Co., Claim Jumper, Morton's The Steakhouse, McCormick & Schmick's, Mastro's Restaurants and Rainforest Cafe and tout a combination of good, fresh food, unparalleled service and marvelous locations. When you add five Golden Nugget Hotel and Casino locations operated by affiliated entities to the mix, along with numerous hotel properties and other entertainment destinations, you can see how Landry’s has vaulted into position as one of America's leading dining, entertainment, gaming and hospitality groups.

The Buyer's CEO is Tilman Fertitta, owner of the Houston Rockets and, according to Forbes (given his estimated net worth of $4.5bn), the “world’s richest restaurateur.” 

In September, the Court hearing the RUI Holding Corp bankruptcy cases (also U.S. Bankruptcy Court in the District of Delaware) approved the $37.2mn sale of RUI Holding and affiliated debtors who hold more than 30 restaurants under the brands: Clinkerdagger; Cutters Crabhouse; Fondi Pizzeria; Henry’s Tavern; Horatio’s; Kincaid’s Maggie Bluffs; Manzana; Newport Seafood Grill; Palisade; Palomino; Portland City Grill; Portland Seafood Co.; Scott’s Bar and Grill; Simon & Seafort’s; Skates on the Bay; and Stanford’s and Stanley & Seafort’s. Also in September, Landry's announced that was acquiring the Del Frisco’s Double Eagle  Steakhouse and Del Frisco’s Grille brands from private-equity firm L Catterton as part of that company’s $650 million acquisition of Irving, Texas-based Del Frisco’s Restaurant Group Inc.

Corporate Structure Chart

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