Guests at Buffets Inc.'s restaurants may have had their fill, but bankers are likely hoping that bidders haven't. The owner of such buffet-style chains as Ryan’s, Hometown Buffet and Old Country Buffet hired Moelis & Co. LLC to explore a potential sale of the entire company. 

Privately held Buffets announced late Thursday, May 12, that it will evaluate strategic options with the intention of raising shareholder value. Joe Kennedy, Jeff Raich and Todd Wadler of Moelis will run an auction process.

Calls to Buffets and Moelis were not returned.

Buffets, like many casual dining chains over the past few years, saw the lines at their restaurants shorten thanks to the economic downturn. (CB Holding Corp., which owns the Charlie Brown’s Steakhouse, filed for Chapter 11 bankruptcy protection in November.)

However, Buffets had already been struggling with decreasing sales in the past, along with mounting debt from when it acquired the Ryan’s chain in 2006 for $876 million.

These economic woes caused the Eagan, Minn.-based restaurant operator to file under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware, in joint administration with its parent company Buffets Holdings Inc., on Jan. 22, 2008.

 

The company, formerly controlled by private equity firms CI Capital Partners and Sentinel Capital, received commitments for up to $117.5 million in new, first lien financing from various lenders in April, 2009. The funding allowed the company to exit bankruptcy with what was believed to be enough working capital for ongoing operations.

Less than a year later, rating agency Moody's Investors Service changed its outlook on Buffets to negative, reflecting the view that cash-strapped consumers will likely put pressure on the company’s operating performance.

In March 2010, Moody’s assigned a B3 rating to Buffets’ proposed $250 million first-lien term loan due 2015. Proceeds from the loan were to be used to re-finance the franchiser’s existing $117.5 million senior secured first-lien term loan and a senior secured second-lien term loan of $180 million.

The credit rating agency said the “ratings also acknowledge Buffet's continuing poor operating performance as well as weak consumer demand trends in the casual dining segment that will continue to pressure Buffets' earnings and cash flow."

As of 2010, annual revenues for Buffets were about $1.3 billion.

With all its hardships, Buffets can warm up to the fact that there was a smorgasbord of deals within the restaurant sector over the past year, suggesting private equity firms and other investor consortia may be hungry still.

Earlier this month, McCormick & Schmick's Seafood Restaurants asked Piper Jaffray & Co. to explore a sale after Houston investor Tilman Fertitta made a hostile takeover bid for the Portland, Ore. company in April.

In October, New York PE firm Kelso & Co. completed its purchase of restaurant chain Logan’s Roadhouse Inc. from Bruckmann, Rosser, Sherrill & Co., Black Canyon Capital LLC and Canyon Capital Advisors LLC for roughly $560 million.

Last July, West Roxbury, Mass.-based Uno Restaurant Holdings Corp. – the operator of 99 Uno Chicago Grill casual-dining restaurants – exited bankruptcy by exchanging $142 million in debt for equity in a reorganized company. The company is now controlled by Twin Haven Capital Partners LLC.

Other notable restaurant deals throughout 2010 include Boston-based Charlesbank Capital Partners LLC flipping Papa Murphy’s International pizza chain to Lee Equity Partners LLC for $180 million in April; Dallas-based Brinker International selling its On The Border Mexican Grill & Cantina chain to an affiliate of Golden Gate Capital in March; and CKE Restaurants Inc., the owner of Carl's Jr. and Hardee's fast-food restaurant chains, being acquired by Thomas H. Lee Partners LP for $928 million in February.

Restructuring