Noteholders Win Bid To Acquire Real Mex

A group of noteholders that includes affiliates of Tennenbaum Capital Partners, Z Capital Partners and J.P. Morgan Investment Management has the winning bid to acquire all assets of Real Mex Restaurants Inc. in a bankruptcy auction.

The board of directors for Real Mex, parent of the El Torito, Acapulco and Chevys Fresh Mex brands, approved the bid late Tuesday.

The sale is subject to court approval in a hearing scheduled Friday.

If approved, the noteholder group could close the deal as earlier as 30 days after the hearing, allowing the casual-dining operator to emerge from Chapter 11 bankruptcy and operate with "a substantially improved balance sheet," Real Mex said in a statement.

"We remain confident in our turnaround plans and are looking forward to putting this challenging but necessary process behind us," said Real Mex chairman and chief executive David Goronkin. "We are close to accomplishing our objectives in the Chapter 11 process and have the right teams in place to move our brands and company forward. A stronger financial foundation will allow us to accomplish this more quickly."

According to court documents, RM Opco LLC, the acquiring entity established by the noteholder group, offered an $80 million credit bid for Real Mex's second-lien notes, as well as about $49 million in cash and the assumption of certain liabilities.

The offer by Tennenbaum, Z Capital and J.P. Morgan was one of two bids for the Cypress, Calif.-based Real Mex, which filed bankruptcy in October.

The other bidder was Harshad Dharod, president and owner of Friendly Franchisees Corp., a franchisee of the Carl's Jr., Papa John's and Denny's chains.

Real Mex said the restructuring was necessary because of its struggles with high debt loads, certain above-market rents and a weak economic environment, particularly in California, where most of Real Mex's restaurants are based.

The company operates about 141 restaurants under the El Torito, Acapulco and Chevys brands, as well as single-unit Sinigual, Las Brisas and the small regional concepts Who-Song & Larry's, Casa Gallardo and El Paso Cantina. The Chevys chain also includes 20 franchised locations.

Real Mex is owned by private-equity firm Sun Capital Partners, based in Boca Raton, Fla.

If the acquisition is approved, RM Opco will emerge holding about 85 percent of equity interests. The remaining 15 percent would be held by holders of senior secured notes due in 2013, according to court filings.

The new company would have a "more profitable store base, lower cost structure and improved cash flow that will fund future growth," filings said.

About 40 restaurants have been closed between January 2011 and January 2012, and the company has renegotiated leases across its portfolio, according to RM Opco's filings.

The noteholder group indicated they would continue Real Mex's current brand re-imaging campaign, including new menus and marketing initiatives for each brand, as well as offering value-priced, quality food.

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