Checkers Drive-In Restaurants recapitalises its loans

Majority ownership shifts to the senior lenders, led by Arbour Lane, as debt is cut substantially..

Checkers Drive-In Restaurants, the company that operates and franchises Checkers and Rally’s restaurants, closed a recapitalisation with its lenders in a transaction announced that reduces the company’s long-term funded debt from $300 million to $75 million, and gives it an additional $25 million in new debt financing commitments to fund a remodelling programme and other expenses.

Terms of the agreement call for majority ownership to shift to Checkers’ senior lenders, led by Arbour Lane Capital Management, Garnett Station Partners and Guggenheim Investments.

Frances Allen, the company’s president and CEO, said in a statement: “This refinancing significantly strengthens our balance sheet by, among other things, equitising our short-term debt maturities. The recapitalisation provides us with the financial flexibility we need to better position ourselves to invest in and continue growing our business.”

The Boston-based law firm Ropes & Gray represented the company’s second-lien lenders in the negotiations.

The problems that led to this restructuring date from before the pandemic. Through the period 2015-20, Checkers suffered a decline of 1.2 percent in average unit volumes for its flagship chain, according to the industry newsletter Restaurant Business. Total system sales were underperforming rival fast food chains.

Over that period, too, the company developed a formidable debt load. In March 2020, Fitch Ratings listed Checkers as one of the restaurant concerns that faced a serious risk of a chapter 11 filing. Likewise, in December 2021 S&P expressed concern that Checkers’ capital structure had become unsustainable because of its high leverage, illiquidity and the reliance on payment-in-kind debt obligations, according to Restaurant Business’ explanation.

There was some talk in 2020 about how the pandemic would prove helpful to Checkers, because it is almost entirely drive-through orientated, and in many areas, drive-through places survived and thrived while indoor eateries were forced to close.

But the pandemic also brought home to people that no drive was necessary: that one can get dinner just by making a phone call and waiting at home. Checkers may have been slow to align with that development.