(Updates with second financing hearing in third paragraph.)
Oct. 5 (Bloomberg) -- Real Mex Restaurants Inc., owner of the Mexican restaurant chains Chevys, El Torito and Acapulco, won court approval to borrow as much as $25 million to help fund operations while in bankruptcy.
U.S. Bankruptcy Judge Brendan Linehan Shannon at a hearing today in Wilmington, Delaware, granted Real Mex permission to borrow the funds on an interim basis. Shannon agreed with the company over creditor objections, saying it faces “significant cash need” to avoid immediate harm to the business and that superior financing isn’t available.
Real Mex will seek approval from Shannon to borrow an additional $24 million from the total $49 million loan at a hearing scheduled for Nov. 3.
The Cypress, California-based company, with 178 restaurants, listed assets of about $272.2 million and debt of about $250 million in court documents filed yesterday. Sun Capital Partners Inc., the owner of restaurant chain “Friendly’s,” which sought bankruptcy protection today, owns about 72 percent of Real Mex’s parent, which also filed for bankruptcy.
Real Mex, the largest full service casual dining Mexican restaurant chain operator in the U.S., said the slumping economy, which led to a decline in sales, forced it to seek bankruptcy protection. Sales fell to $478 million in 2010 from about $553 million in 2008, Chief Financial Officer Richard P. Dutkiewicz said in court papers.
The company, which has about 11,000 employees, has restaurants in a dozen states from New York to California, as well as in Japan and Turkey.
Real Mex owes about $37.6 million to General Electric Capital Corp. as the agent for lenders with a first priority of repayment, court papers show. Members of the lender group are providing the bankruptcy financing.
The company owes about $134.3 million on senior secured notes with a secondary priority of repayment, according to court filings. Affiliates of Z Capital Management LLC, which objected to the bankruptcy loan, hold more than 70 percent of an unsecured loan of about $36 million. Real Mex’s parent owes about $38 million on another unsecured loan.
Real Mex will seek court permission to pursue a sale of substantially all its assets, and has been working with the noteholders to secure a lead bid that would set a floor for an auction, according to court filings.
The company has proposed a timeline that would require bids by Jan. 4 for a Jan. 9 auction, followed by a Jan. 13 hearing to seek approval of the sale, court papers show.
The case is In re Real Mex Restaurants Inc., 11-13122, U.S. Bankruptcy Court, District of Delaware (Wilmington).
--Editors: Fred Strasser, Mary Romano
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