Abuelo’s filed a proposed reorganization plan in bankruptcy court putting new board leadership and ownership in place. If approved, it also wipes out the value previous owners had.
The plan also:
Restructures roughly $8 million of loans (all from the same bank) into a single 10-year note at 7 percent interest
Pays back secured creditors (or gives them options for recovering their full value)
Pays back only a portion to unsecured creditors
Gives Abuelo’s the right to keep or reject existing contracts
The plan still needs final approval after creditors get a chance to review the plan and vote. The exact timing was not yet listed in court records, but Bankruptcy Judge Edward Morris in Fort Worth previously gave Abuelo’s the exclusive right to present a plan until April 30 – meaning no one else can solicit votes for an alternative or competing plan until then.
Abuelo’s, a full-service casual dining restaurant chain based in Lubbock, filed for bankruptcy in September with a little more than $31 million in assets and just less than $31 million in liabilities. The chain continues to operate during the bankruptcy.
The company operated 16 restaurants nationwide when the bankruptcy was first filed, court records said. At one point, Abuelo’s had as many as 40 locations.
LubbockLights.com covered the closure of three locations after Abuelo’s filed for bankruptcy. The website as of Monday listed 13 locations in six states.
In the time since Abuelo’s filed for bankruptcy, the company reported $2.5 million in profit (operating income). Sales have been running above $4 million per month, for example $4.22 million in January. The monthly profit in January was more than $219,000.
Ownership, leadership
The bankruptcy plan called for current investors in FCI Holdings (Abuelo’s parent company) to lose the value of their investment. But they get the right to participate in a future equity offering.
“Holders of Interests in FCIH shall receive nothing under this plan on account of their existing interests in FCIH and such interests shall be cancelled on the effective date,” the proposed plan said.
Bankruptcy law requires creditors to be paid first before shareholders, according to Investopedia. It’s called the absolute priority rule.
The current shareholders of FCIH get the exclusive right to purchase “super voting preferred” or “pay-in-kind” stock.
The super voting stocks get 120,000 votes per share as compared with common stock of 1 vote per share. The pay-in-kind stocks get no voting rights, but get dividends.
Details on the purchase price will be filed in the court record in the future. But anyone agreeing to buy super voting stock must cover $100,000 per share if Abuelo’s cannot pay the $8 million bank loan that we described earlier.
David Sharbutt and G. Randall Andrews put up a $1.5 million loan to get Abuelo’s through the bankruptcy. Under the plan, the money will not be paid back in cash but instead become equity for the two men.
Read it here: Plan of Reorganization
The first $1 million of their loan will become 50 shares of “super voting” preferred stock. The remaining $500,000 of their loan becomes “pay-in-kind” stock.
Sharbutt and Andrews will be the initial new directors of FCIH if the plan goes through. Other directors will be added later “in accordance with the FCIH bylaws.” FCIH managers and officers will be chosen after that.
Related
Related posts