Case Studies
J.S. Held Acquires Shechter & Everett to Expand Forensic Accounting Capabilities for Family Law Disputes in Florida
Read MoreThe Company was an 18-door Quick-Service Mexican Restaurant Franchise whose primary competitor was the Chipotle restaurant chain. The stores were based in and around Boston, MA, with the Company receiving numerous awards from the franchisor for its creative marketing and growth strategies. Of the 18 stores operating, those with doors open for more than one year were cash flow positive (9), two doors were cash neutral, and the remaining doors, which had been open for less than one year, were all burning cash to varying degrees. Lastly, due to the Company's intended high growth, a corporate infrastructure has been built to enable the Company to expand to as many as thirty (30) doors within the next twenty-four months. There were no other Franchisors in the US Northeast Region for Qdoba. The Company was also involved in the start-up and opening of an additional franchised casual theme restaurant, whereby many of the same corporate personnel were also responsible for providing support to the casual theme restaurant, and there had been undisciplined accounting with regard to assets, cash, and liabilities incurred with regard to the opening of both Qdoba and the casual theme restaurants.
There were a total of three (3) senior lenders, each with its own identified senior position collateral, which were essentially the various doors that their capital had funded, two (2) junior lenders, one of whom was a related fund to one of the senior lenders and a group of five (5) individuals comprising a second group of Jr. secured lenders. There were no group landlords, except for one who had 3 doors. There was no equity value either implied or precisely on the balance sheet, with the sole source of equity from the Company’s start provided by the owner-operator and the lenders. Further, the Company was embroiled in substantial legal suits brought by various creditors and landlords, any number of which could have forced an involuntary BK filing. While the Company had enjoyed recognition from the franchisor for its creative marketing and joint venture efforts, it had always struggled with its balance sheet and a lack of growth equity capital. The Company had lost its credibility with all of its constituents, including the lenders, landlords, and the franchisor. There was an impending cash wall with no plan or cash forecast and little support for additional capital from the lenders.
Our experts believed that the only opportunity to preserve any enterprise value was to immediately close the underperforming stores and radically reduce the corporate infrastructure to mission-critical operations only. While ownership understood that the business was deeply insolvent with little chance of survival, it was concerned about the personal guarantees associated with two of the three senior lenders, as well as the individual Jr. secured lenders' ability to recover their investments. Our solutions included negotiating both capital and royalty relief from the Franchisee to keep the entire book of stores open during an “out of court” sale process, and negotiating immediate standstill agreements with the lenders to allow the out-of-court sale to proceed. They led communications with key lawsuit constituents to negotiate standstill agreements and ultimately achieve bankruptcy avoidance.
We established the potential out-of-court payments with all constituents and provided the critically necessary waterfall of payments to the various creditors by class and in what scenario. Our team ultimately negotiated a sale price from the Franchisee that was estimated to be a 5x premium over what would have been paid for the 9-11 cash flow-positive/cash-neutral store assets in a 363 sale process, and developed the out-of-court settlement strategy for each of the creditors. We then led negotiations with all Lenders, Jr. Lenders, and unsecured creditors. Each class constituent received significantly greater recovery than it would have otherwise received in a bankruptcy sale scenario. The owner operator was relieved of their personal guarantees and, other than losing their invested capital, had no go-forward liabilities and retained total ownership of the casual dining restaurant operation.
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