Quaker Steak Bid Procedures to Go Before Judge
YOUNGSTOWN, Ohio – The bankruptcy reorganization of Quaker Steak & Lube moves into its next phase Tuesday when U.S. Judge Alan M. Koschik conducts a hearing on bidding procedures for the sale of the assets of the restaurant chain.
Quaker Steak filed Chapter 11 Nov. 15 in combination with a $25 million asset purchase agreement with TravelCenters of America, the so-called stalking horse bidder in the sale of assets. Should more than one bidder emerge, and offer at least $250,000 more than TravelCenters, Quaker Steak attorneys ask that an auction be held Feb. 9 in the Cleveland offices of McDonald Hopkins LLC.
The hearing on bidding procedures will be held at 2 p.m. in Judge Koschik’s chambers in Akron.
Privately held Quaker Steak, founded in 1974 in Sharon, Pa., has 50 restaurants in 16 states, primarily in Pennsylvania and Ohio.
TravelCenters, traded on the New York Stock Exchange, operates more than 500 full and quick-serve restaurants, principally in 253 full-service travel centers and 184 convenience stores in 43 states.
One objection to the bid procedures was filed by office of the U.S. Trustee, which represents creditors. The trustee argues the “combined amounts of the breakup fee and expense reimbursement [to be paid TravelCenters] appear to be excessive.”
Another objection is from Cortland Banks, which is owed $2,616,564 on equipment and mortgage loans related to Quaker Steak opening restaurants in Boardman, Lakewood and Medina, dating to June 2011.
“Although Cortland Bank supports the debtors in their efforts to sell substantially all of the assets as a going concern,” the bank’s objection states, Cortland wants its loans paid off at closing from the sale proceeds, not after expenses and other costs are deducted.
Cortland Savings and Banking Co. is one of four secured lenders that financed Quaker Steak’s two-year building boom, from 2011 to 2013, that apparently did not go as planned. According to court documents, Farmers National Bank of Canfield is owned $1,702,465 in equipment and mortgage loans, United Capital Business Lending Inc. $3,320,736 and Wells Fargo Bank $2,355,986.
Wells Fargo sued Quaker Steak last year in U.S. District Court in Mississippi, and dates for resolution of that litigation appear to have triggered Quaker Steak’s Chapter 11 filing.
The company’s cash crunch came in December 2013, court documents state, “due to the acquisition of certain underperforming units and select corporate owned units with negative same-store sales.”
Some stores were closed and a restructuring plan was implemented “to address the reality that [Quaker Steak] did not have sufficient liquidity to make debt service payments to its secured lenders,” states an affidavit signed by Gregory R. Lippert, president and CEO of Lube Holdings Inc., the parent company.
In July 2014, Quaker State hired Mastodon Ventures Inc., an investment banking firm based in Austin, Texas, to perform a comprehensive analysis of its financial condition. Negotiations with the company’s secured lenders followed in an attempt to restructure the debt, Lippert states, or find a replacement lender. Several parties expressed interest and conducted due diligence but failed to make a commitment, which led to Quaker Steak refocus its efforts on finding a buyer.
Mastodon contacted more than 70 potential investors or buyers, court documents state, executed 40 confidentiality agreements and ultimately received seven letters of intent from interested parties.
In May, Quaker Steak “provided exclusivity to one of the interested parties for an out-of-court equity sale” but the transaction fell through, according to documents.
TravelCenters emerged in October with an offer to purchase all the assets as part of bankruptcy reorganization, “The highest and best offer [that] provided the greatest opportunity for [Quaker Steak] to realize the greatest return for all of its stakeholders.
Quaker Steak’s unsecured creditors include Reinhart Foodservice Inc., owned $216,651, and TriMark SSKemp, owned $105,667.
At Tuesday’s hearing an objection is also slated to be heard from the Official Committee of Unsecured Creditors, which “wholeheartedly supports” the effort to sell Quaker Steak’s assets to TravelCenters or the highest and best bidder. But the committee argues in its objection that “certain aspects” of the auction process as proposed by Quaker Steak “may appear to chill the opportunity for other parties to evaluate the debtors’ assets and submit competing bids.”
The unsecured creditors also object to a portion of the relief Cortland Banks seeks because it has had insufficient time to “investigate and evaluate the liens asserted by Cortland.”
In a separate objection, filed Dec. 11 and related to post-petition financing, unsecured creditors are seeking court approval to employ, at Quaker Steak’s expense, BDO USA LLP as the committee’s financial adviser. The rationale, court papers argue, involves “extremely complicated” secured lending relationships that make it “imperative that the committee and its professionals conduct a thorough lien investigation.”
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