As if more evidence of a flagging economy was needed, local restaurant chain Buffets Holdings Inc. filed for bankruptcy Tuesday after suffering months of high food and energy costs along with fewer customers.
The Eagan-based company, with 626 restaurants including HomeTown Buffet and Old Country Buffet, filed to reorganize under Chapter 11 protection in Delaware bankruptcy court.
The company listed $964 million in assets and $1.2 billion in debts. Earlier this month, the company hinted at the depths of its problems when it missed two interest payments of $18.75 million on its bond debt, though it said it planned a restructuring deal with creditors before the grace period expired Jan. 31.
Its restaurants remain open, and no layoffs of its 37,000 employees are planned, Chief Executive Mike Andrews suggested in a statement issued Tuesday. Buffets, which is owned by New York private equity firm Caxton-Iseman Capital, reported $1.55 billion in revenue for the year ended Sept. 19.
The experience at Buffets Inc. is hardly unusual. Many restaurant companies have been hit by the combination of expensive food, expensive fuel and penny-pinching customers.
Paul Olson, research director at Restaurant Finance Monitor, a Minneapolis-based trade publication, said analysts are bracing for bad news next month when restaurant companies begin reporting 2007 results.
"Everyone is bracing for some pretty ugly misses. They think the fourth quarter was going to be pretty bad," he said.
The only restaurant companies that seem to be weathering the current economic conditions are those with sizable revenue from overseas locations, like McDonald's, Olson said. The numbers may start looking better in the second half of 2008, but mostly because they will be compared with the poor numbers from late 2007, Olson said.
Moody's Investors Service predicts a steep rise in the default rate by the end of this year to 4.8 percent for corporate bonds. It stood at 0.9 percent at the end of 2007. It could climb to 5 percent by the end of 2009, according to Moody's.
"They are a tenant in good standing, and they have been making their payments," said Tere Miller, a spokeswoman for Realty Income Corporation, a Escondido, Calif., realty investment company that owns 120 Buffets restaurants. She said Realty Income expects Buffets to continue to pay debt and eventually climb out of bankruptcy.
"They've just piled on way too much debt," Miller said.
Buffets, of Eagan, merged with Ryan's Restaurant Group Inc. of South Carolina in 2006, a move that created a 675-restaurant chain in 42 states.
Matt McKinney • 612-673-7329