031162 Largest Burger King Franchisee to Sell 270 StoresNovember 22, 2003Miami, FL - Once Burger King's largest franchisee, AmeriKing is selling off its restaurants as part of a bankruptcy liquidation. AmeriKing filed in December for Chapter 11 bankruptcy protection in Wilmington, Del., with plans to reorganize. But the suburban Chicago-based company failed to restructure the debt that had overburdened its balance sheet and raise investment capital needed to update its restaurants. The plan is to sell AmeriKing's remaining 270 restaurants on a market-by-market basis. A group led by Miami Burger King franchisee Al Cabrera is the leading candidate to purchase about half the stores. About 100 AmeriKing restaurants are in the Chicago area, with the remainder spread primarily around the Midwest and Mid-Atlantic states. But the company's markets are as far-flung as Colorado and the Carolinas. “They've been too geographically dispersed,” said Rob Doughty, spokesman for Miami-based Burger King. “It's hard to run an operation that large when you don't have contiguous markets.” The Cypress Group, an investment banking firm headed by former Burger King Vice President Dean Zuccarello, has been working to secure buyers for the restaurants from both existing franchisees and new prospects. The U.S. Bankruptcy Court in Delaware will be asked next Tuesday to approve the sale of selected markets. “It's an orderly sale process that's being done for the benefit of the creditors,” said Neil Glassman, a Delaware attorney representing AmeriKing. AmeriKing's story illustrates the problem of many Burger King franchisees who took advantage of readily available capital to fund expansion during the early and mid-1990s. AmeriKing formed in 1994, more than doubled in size during the 1990s, becoming Burger King's largest franchisee. But when Burger King's sales hit the skids at the end of the decade, franchisees like AmeriKing found themselves overextended, in default on loans and behind in royalty payments. The final straw for AmeriKing was last year's price war with McDonald's. Burger King Chief Executive Brad Blum made improving the health of franchisees a top priority earlier this year when he hired Trinity Capital to help with financial restructuring. About 20% of Burger King's U.S. franchise system has been struggling financially. In addition to AmeriKing, the Westwind Group has also been shopping its stores and selling off selected markets, including the sale a few months ago of stores in Palm Beach County to Burger King Corp. But Blum's efforts may have come too late for AmeriKing. When AmeriKing filed for bankruptcy in December, it had 329 restaurants, total assets at $223.4 million and total liabilities of $291.8 million. The company's largest unsecured creditor was State Street Bank and Trust, which holds $63.4 million in 13% senior notes and $53.5 million in 10.75% senior notes, both due in 2007. Burger King was next on the list with $5.5 million due in franchise fees. AmeriKing had failed to repay a $115.5 million note that was due June 30, 2002. Despite AmeriKing's problems, industry experts say the restaurants are likely to sell for the industry standard of between three and five times earnings before taxes, interest, depreciation and amortization. “I don't think these are going to be given away,” said Jeff Rosenfeld, managing partner of Kessev Finance, which specializes in franchise financing. But others aren't so sure, given Burger King's continued struggles with declining sales. “It's not going to be an easy job,” said Ron Paul, president of Technomic, a restaurant industry consulting firm. “Until you see some improvement in Burger King's results and the current franchisees happy, there may not be a lot of buyers.”
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