Priszm files for CCAA restructuring

The units last traded for eight cents on the Toronto Stock Exchange.

The Toronto Star
March 31, 2011

Priszm files for CCAA restructuring
Craig Wong

Priszm Income Fund was granted court protection from creditors under the Companies’ Creditors Arrangement Act on Thursday as part of a plan to assist in the sale of its fast food restaurants.

Hammered by falling sales and little prospect of improvement in the traditionally weak first half of the year, the fund had been struggling with its debt before it sought a court-supervised restructuring.

“The KFC and Taco Bell brands experienced significant same-store sales declines in 2009, 2010 and the first quarter of 2011,” the company said in a court filing.

The income trust delayed a $46.6-million sale of 231 KFC, Taco Bell and Pizza Hut restaurants in Ontario and British Columbia to Soul Restaurants Canada Inc. earlier this year because certain conditions had not been satisfied. The cash from the sale was going to be used in part to help pay for franchise upgrade requirements and other needs.

Priszm said Thursday it has received a number of expressions of interest for its remaining restaurants.

“The company is in the process of reviewing these offers and will be negotiating with the potential acquirers in order to maximize recovery for the company’s stakeholders and provide for a going concern solution for the business,” Priszm said in statement.

The Toronto Stock Exchange suspended trading in the fund’s units and convertible unsecured subordinated debentures and started a review to delist the fund from the exchange.

The units last traded for eight cents on the Toronto Stock Exchange.

The fund holds a 60 per cent interest in Priszm Limited Partnership, which owns and operates more than 400 KFC, Taco Bell and Pizza Hut restaurants in seven provinces across Canada with 6,500 employees.

Court protection from creditors, the company said, will allow for operations to continue uninterrupted during the restructuring. The company’s existing secured lenders have agreed to provide up to US$3 million in additional financing during the court-supervised process. Chief financial officer Deborah Papernick will serve as chief restructuring officer.

Priszm tried to increase profitability in 2010 when it closed nine restaurants and worked to reduce food waste and increase productivity. The company had also hired investment banking firm Canaccord Genuity to help restructure its debt.

Canaccord Genuity contacted 74 groups, however challenging credit markets and a lack of agreement on certain business issues resulted in no deal, the company said.

Priszm and its related companies had about $98.8 million in short and long-term debt and $39.1 million in accrued and unpaid liabilities at March 30.

Yum Restaurants Canada is the franchisor of the KFC, Taco Bell and Pizza Hut brands in Canada.

“The CCAA process gives Priszm protection to restructure its business and ultimately, that will be positive for the brands in Canada,” Sabir Sami, says Yum Restaurants International’s general manager for Canada.

Priszm withheld a $975,000 interest payment on its $30-million convertible debenture at the end of last year.

Priszm said it is in default in its obligation to complete upgrades to a number restaurants as required under the franchise agreement and did not pay a franchise renewal fee due on Aug. 10, 2010.

The company has also not paid a continuing fee due under its franchise agreement since December.

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