Piccadilly Cafeterias expects to file for bankruptcy by end of year

By Peter Heap

New York, Sept. 30 - Piccadilly Cafeterias, Inc. said it expects to file for protection under federal bankruptcy laws during its second fiscal quarter ending Dec. 31, 2003.

Shareholders will likely receive little or no value and if the company is sold the proceeds are unlikely to cover the company's liabilities, Piccadilly Cafeterias warned in a filing with the Securities and Exchange Commission.

Following contacts with possible strategic and financial buyers, the Baton Rouge, La. cafeteria chain is currently negotiating with "several" of the six potential purchasers that have expressed an interest in conducting due diligence and receiving a presentation from management.

All the possible buyers intend to structure any purchase through a Chapter 11 filing using section 363 of the Bankruptcy Code.

Execution of an agreement and filing a prepackaged bankruptcy could come as early as October with emergence in early 2004, the company said in the SEC filing.

Proceeds from a sale are unlikely to be sufficient to pay the company's liabilities in full, Piccadilly Cafeterias said.

If the company is unable to reach agreement with a buyer, the company will likely file for bankruptcy in October and would then seek to renegotiate the terms of its existing debt.

In either case, stockholders are expected to receive "little or no value."

Piccadilly Cafeterias currently has $39.2 million of term A senior secured notes outstanding. Under the terms of the notes it is required to use $5 million from excess cash flow to buy back notes at 101% of par plus accrued interest on Sept. 30.

But given the expected bankruptcy filing, the company has decided not to make this offer even though it would have sufficient cash on hand and availability on its credit facility to fund the purchase. If the offer is not made, the trustee would have the right to notify the company of the breach and, if it is not remedied, accelerate the debt. Piccadilly Cafeterias said in the SEC filing it would not remedy the breach if notified.

Piccadilly Cafeterias has a $20 million senior credit facility with Wells Fargo Foothill which matures in December 2004 and bears interest at prime plus 200 basis points. As of Aug. 15, there were no outstanding borrowings on the facility and $13.7 million was used for outstanding commercial letters of credit.

Piccadilly Cafeterias has been working with turnaround and crisis management firm PMCM, LLC since May.

Options examined since then include remaining independent but downsizing the company by shedding its unprofitable cafeterias and/or renegotiating the terms of unfavorable leases, seeking a capital partner to invest equity in the company, seeking relief from the Pension Benefit Guaranty Corp. for the funding obligations needed to restore the defined benefit plans to fully funded status, and renegotiating the terms of the company's secured indebtedness.

"However, given the magnitude of the company's funding liability for its pension plans, the projected cash cost of buying out the leases of the company's remaining unprofitable locations, and the company's liquidity constraints, management and PMCM concluded, and recommended to the board, that while efforts would continue to pursue options to allow the company to remain independent, the most prudent course of action would be to begin a process to determine whether credible bids to acquire the company's operations could be elicited," Piccadilly said in the SEC filing.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.