Bagels & Bankruptcy, It's Chapter 11 for Einstein/Noah

It's not over yet for Einstein/Noah Bagel Corp., but it is the 11th inning. Following more than a year of financial difficulties, the company filed for Chapter 11 Bankruptcy and reorganization. The petitions were filed with U.S. Bankruptcy Court in Phoenix, AZ, bagelry said Thursday.

CEO Bob Hartnett tried through April to negotiate with bondholders and a private equity group to renegotiate debt, obtaining a $60 million term and revolving loan facility commitment from one party, Paribas--upon emergence from Chapter 11. The company also announced that it has received a commitment for $36 million in debtor-in-possession (DIP) financing from the company's existing bank lenders, led by Bank of America, N.A.

But after losing $14.3 in fiscal 1999, a reorganization and separation from the failed Boston Chicken chain (execs still own 51%) prior to McDonald's acquisition of the chicken chain…debt restructuring and new capital was slow to come.

In the first days of April, as the last round of financing re-org negotiations got underway, the company told Bakery Online, "We're not closing any stores, the bills are getting paid and we are in no imminent danger of closing stores tomorrow." (Click here to read article).

The company has already closed 74 Einstein Bros. stores and Noah's New York Bagels stores, located primarily in Los Angeles, Boston, Philadelphia and New York, leaving 465.

CEO Robert Hartnett said the Thursday, in announcing the filing, that the company had made "excellent progress in improving and strengthening the operating side of the business" with increased average per store revenue and cash flow and reduced corporate overhead. "Unfortunately, the capital structure of the company has impeded the growth of the business."

He cited an excessive debt burden created by undisciplined capital spending and store growth, excessive overhead levels and weak store performance occurring in prior periods when franchised stores were operated by financed area developers. Bad real estate deals during this period further hurt the company's financial profile.

The proposed joint restructuring plan proposed by the company and its Bagel Partners subsidiary would merge the two entities to create a newly reorganized, leaner company with less debt and fewer undesirable real estate holdings for both Einstein Bros. and Noah's New York chains.

The Golden, CO, chain of Boston Chicken Inc., now owned by McDonald's, said Thursday that the Einstein/Noah Chapter 11 filing isn't expected to effect Boston Chicken's own Chapter 11 process.

Edited by Bob Sperber