Vicorp Closes Stores, Files Ch. 11 Bankruptcy

DENVER-Vicorp Restaurants Inc. on Thursday filed for relief from creditors under Chapter 11 of the US Bankruptcy Code. The locally based publicly held company with more than 300 Village Inn and Bakers Square restaurants in 25 states heretofore says it will use the process to restructure its debt obligations and has closed dozens of under-performing corporate-owned restaurants.

In court filings, the company says “the cost of food being purchased by the debtors has escalated by more than 30 percent over the last year” and that its customer base has “also been under extreme financial pressure due to rising food and gasoline costs.” Debts listed by the company include $126.5 million of 10.5% unsecured notes issued April 14, 2004 and maturing April 15, 2011. The creditor is Wilmington Trust Co. Vicorp also listed $37.7 million in other loans and $15 million in unpaid trade debt to suppliers and other vendors.

In conjunction with the bankruptcy filing, its pre-petition lenders have agreed to provide the company with $60 million in debtor-in-possession financing that, together with the company’s existing cash flow, would enable Vicorp to fulfill obligations associated with operating its business, including payments to employees, suppliers and other business partners for goods delivered and services provided on or after today’s filing. This financing arrangement is subject to approval by the Bankruptcy Court.

“Although we have already taken many steps to address the challenges we face, these steps were not enough to allow us to address our substantial debt obligations,” Vicorp chief executive Ken Keymer said in a prepared statement. “The recent economic slowdown, combined with substantial increases in operating costs, has seriously impeded the ability of Vicorp to generate results similar to those historically achieved by the company. Certainly, we regret the necessity of filing Chapter 11 and the closure of 56 restaurants in various communities across the country.”

Two months ago, Vicorp engaged Piper Jaffray in January to effect a “restructuring transaction.” Last week, the company was downgraded to negative by Standard & Poors. The downgrade “reflects the increased near-term default risk” after Vicorp did not file its annual report within 30 days of its extended due date, said Charles Pinson-Rose, a credit analyst with Standard & Poor’s.

Founded in 1958, Vicorp Restaurants Inc. as of April 1 operated 306 restaurants in 25 states, not including 93 franchised restaurants. Today, its portfolio includes 250 company-operated restaurants and 93 franchised restaurants. In conjunction with the store closings, the company fired 1,750 of its 12,750 full- and part-time employees.

Vicorp’s major shareholders are Wind Point Partners IV LP and Wind Point Partners V LP, both of Southfield, MI, and Mid Oaks Investments LLC of Buffalo Grove, IL. The Wind Point funds own 78% of the preferred stock and 73.4% of the common stock. Mid Oaks owns 14.31% of the preferred stock and 12.76% of the common stock.