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The paper says Quiznos, whose second-quarter results will likely come in well below previous projections, has hired two outside firms to try to reach a deal with creditors to restructure its debt without filing bankruptcy. Law firm Paul, Weiss, Rifkind, Wharton & Garrison and investment bank Moelis & Co. will negotiate with creditors on how to address a debt load exceeding $850 million. Quiznos hopes to convince debt holders to forgive more than $200 million dollars of debt in exchange for ownership stakes in the floundering company.
Majority owner Dick Schaden and other chain owners had been prepared to pump between $50 million and $100 million into the chain, but didn't after refinancing efforts failed. The company says it's cash flow positive and its loan payments are current, but Quiznos is close to breaking the terms that forbid the company's total debt load from exceeding more than seven times its earnings. The chain says that same store sales open at least a year are down nearly 15% in 2011. Quiznos blames the poor economy and a lack of advertising, despite millions that're pumped in by the estimated 3,500 restaurants still operating, for the poor performance.
This is a sad, sad story. Quiznos was on its way to 10,000 stores when I bought a franchise. Back then the average franchisee was making money but there were already cracks showing. Complaints of overpricing food and paper, churning stores, and putting several stores within a few miles of each other became common. Those practices implemented by Schaden doomed thousands of franchisees to financial failure and bankruptcy.
My wakeup came when one franchisee, Bob Baber, committed suicide after losing everything. The treatment franchisees endured has lead Quiznos to where it is today. If the creditors are smart they will work some kind of agreement that will eliminate Schaden's majority ownership and bring in an experienced management team to completely revamp the Quiznos brand. If that's not in the cards it's in their best interest to call in the loan and sell or liquidate it. See The Article