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Wednesday, August 13, 2008 5:05 AM


Uno Pizza Chain Misses Bond Payment


The Wall Street Journal is reporting Uno Restaurant Chain Talks With Lenders on Payment.

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.
My Comment: Uno's is indeed a Chicago landmark. I have probably been there 20 times or more, but the last time was at least 10 years ago.
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.

"We are not in any imminent danger of filing for bankruptcy," Mr. Psallidas said.
My Comment: If imminent means tomorrow then I agree. If it means within a month or two I sure don't.
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.
My Comment: Frugality is sure setting in when pizza sales are sliding close to 8%. This of course is no surprise given The Future Is Frugality.
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.
My Comment: The private equity model of stripping assets is finally on the deathbed. There is not going to be easy money for pirates to borrow to continue to loot companies, soak them debt, pay themselves handsomely, only let the companies they buy rot in a death sentence.

The moral standards of those who have been engaged in such activities is totally disgusting. What will put a halt to equity stripping is the collapse of the credit markets. Ability of private equity to raise capital at cheap rates has vanished. This is a good thing.
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.
My Comment: I am a huge pizza fan so pizza to me is always relevant. However, missing bond payments is even more relevant. And pizza parlors that miss bond payments have a distinct tendency to go out of the pizza making business.
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.
My Comment: I did not even realize Marie Callender had restaurants. We have had their chicken pot pies from the frozen foods section of the grocery store.
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.
Pizza Pies, Pot Pies, and 40,000 related pie making and other cheap-eats jobs are all clearly in trouble. The frugality mentality is picking up steam and is starting to roll over everything that remotely gets in its way. Restaurants are going to have to lower prices to attract customers. Can they survive if they do? They sure can't survive if they don't. There is simply not enough demand at current prices.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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