Garbanzo Mediterranean Grill, LLC
CASE SUMMARY: Garbanzo Mediterranean Grill Seeks to Reorganize After Suffering 90% Drop in Franchise Royalties
Fri 08/14/2020 16:48 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Notice
St. Louis, Mo.-based Garbanzo Mediterranean Grill, which owns and operates four Mediterranean cuisine quick service restaurants, with catering and delivery businesses, and franchises 21 additional locations, filed for chapter 11 protection on Wednesday in the Bankruptcy Court for the Eastern District of Missouri, along with a few affiliates. After recording a $2.2 million loss in 2019, the debtors sought help from a restructuring advisor early on in 2020 only to see matters worsen due to the Covid-19 pandemic, with revenue falling across all segments, including in-store sales, catering, delivery and franchise royalties. Royalties in particular have dropped more than 90%. “With no other alternatives available,” the debtors enter chapter 11 with the plan of evaluating “various alternatives to satisfy the claims of their vendors and other creditors by way of a reorganization that will allow the Debtors’ to position themselves for long-term success.”
The case would be funded through the use of cash collateral, and the debtors say that they “remain in good-faith discussions” with the prepetition lenders regarding the use of cash collateral.
The first day hearing has been scheduled for Monday, Aug. 17, at 10 a.m. ET.
The company reports $1 million to $10 million in assets and $10 million to $50 million in liabilities. The company has $17.5 million of debt, including $16.5 million of secured debt, as follows:
The 2019 Notes 1 and 2020 notes are held by various lenders with Michael Staenberg as agent, the 2019 Notes 2 are held by various lenders with Gemini Investors V, L.P. as agent and the 2020 notes are held by various lenders with Gemini Investors V, LP as agent.
The debtors are represented by Carmody MacDonald in St. Louis, Mo. The case number is 20-43963. The case has been assigned to Judge Barry S. Schermer.
Background
Garbanzo Mediterranean owns and operates four quick service restaurants and catering and delivery businesses all focused on Mediterranean cuisine, including hummus, falafel, chicken and beef shawarmas, and salads on handmade pita and laffa. The company also sells franchises nationally to third parties and currently has 21 franchisees, of which 10 also have catering and delivery businesses.
As of Dec. 24, 2019, the debtors had negative retained earnings of approximately $22.5 million and long-term liabilities of approximately $15.6 million.
The debtors say that, generally, delivery orders account for a small amount of their profitability due to commissions for third-party delivery services, while catering sales are among their most profitable. In 2020, between March and mid-May, overall sales were down on average between 50% and 75%. At present, the debtors say that overall sales continue to be down 20% on average compared with previous years, while catering sales are down an average of 90%. This slight stabilization of overall sales is attributable, in part, to the debtors’ ability to reopen 50% of their dine-in capacity.
Franchise royalty income has decreased by more than 90% on a same-store basis since the start of the pandemic, with many of the debtors’ franchisees suffering a “quick and severe” drop in sales. Approximately 42% of Garbonzo’s franchisees are located at colleges and universities, which have been closed since March. These franchisees currently plan to reopen in Fall but “under significantly limited operations.” It is expected that sale revenue from these franchisees will continue to decrease in the future months, the debtors say.
The debtors' largest unsecured creditors are listed below:
Cash Collateral Motion
The debtors request the use of cash collateral on an interim basis through (a) 30 days after entry of the interim order if the final order has yet to be entered or (b) if the cases are converted or a trustee or examiner is appointed. The company proposes the following adequate protection to its prepetition lenders: replacement liens (excluding avoidance actions and their proceeds), superpriority administrative expense claims and financial reporting. The carve-out for professional fees is $400,000.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Notice
| Summary |
| Garbanzo Mediterranean Grill owns and operates four Mediterranean cuisine quick service restaurants, with catering and delivery businesses, and franchises 21 additional locations |
| Attributes bankruptcy to pre-Covid-19 revenue struggles and the impact of the pandemic on its four owned locations and on royalties for its franchised locations |
| Seeks to reorganize and fund the chapter 11 case through cash collateral |
St. Louis, Mo.-based Garbanzo Mediterranean Grill, which owns and operates four Mediterranean cuisine quick service restaurants, with catering and delivery businesses, and franchises 21 additional locations, filed for chapter 11 protection on Wednesday in the Bankruptcy Court for the Eastern District of Missouri, along with a few affiliates. After recording a $2.2 million loss in 2019, the debtors sought help from a restructuring advisor early on in 2020 only to see matters worsen due to the Covid-19 pandemic, with revenue falling across all segments, including in-store sales, catering, delivery and franchise royalties. Royalties in particular have dropped more than 90%. “With no other alternatives available,” the debtors enter chapter 11 with the plan of evaluating “various alternatives to satisfy the claims of their vendors and other creditors by way of a reorganization that will allow the Debtors’ to position themselves for long-term success.”
The case would be funded through the use of cash collateral, and the debtors say that they “remain in good-faith discussions” with the prepetition lenders regarding the use of cash collateral.
The first day hearing has been scheduled for Monday, Aug. 17, at 10 a.m. ET.
The company reports $1 million to $10 million in assets and $10 million to $50 million in liabilities. The company has $17.5 million of debt, including $16.5 million of secured debt, as follows:
The 2019 Notes 1 and 2020 notes are held by various lenders with Michael Staenberg as agent, the 2019 Notes 2 are held by various lenders with Gemini Investors V, L.P. as agent and the 2020 notes are held by various lenders with Gemini Investors V, LP as agent.
The debtors are represented by Carmody MacDonald in St. Louis, Mo. The case number is 20-43963. The case has been assigned to Judge Barry S. Schermer.
Background
Garbanzo Mediterranean owns and operates four quick service restaurants and catering and delivery businesses all focused on Mediterranean cuisine, including hummus, falafel, chicken and beef shawarmas, and salads on handmade pita and laffa. The company also sells franchises nationally to third parties and currently has 21 franchisees, of which 10 also have catering and delivery businesses.
As of Dec. 24, 2019, the debtors had negative retained earnings of approximately $22.5 million and long-term liabilities of approximately $15.6 million.
The debtors say that, generally, delivery orders account for a small amount of their profitability due to commissions for third-party delivery services, while catering sales are among their most profitable. In 2020, between March and mid-May, overall sales were down on average between 50% and 75%. At present, the debtors say that overall sales continue to be down 20% on average compared with previous years, while catering sales are down an average of 90%. This slight stabilization of overall sales is attributable, in part, to the debtors’ ability to reopen 50% of their dine-in capacity.
Franchise royalty income has decreased by more than 90% on a same-store basis since the start of the pandemic, with many of the debtors’ franchisees suffering a “quick and severe” drop in sales. Approximately 42% of Garbonzo’s franchisees are located at colleges and universities, which have been closed since March. These franchisees currently plan to reopen in Fall but “under significantly limited operations.” It is expected that sale revenue from these franchisees will continue to decrease in the future months, the debtors say.
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | ||
| Creditor | Location | Amount |
|---|---|---|
| Gemini Investors V LP | Wellesley Hills, Mass. | $ 5,620,660 |
| MHS Trust Dated as of January 13, 1986 | St. Louis | 5,496,903 |
| Mediterranean Holdings LLC | St. Louis | 1,289,975 |
| MHS Telluride LLC | St. Louis | 1,035,397 |
| Younger Family Limited Partnership | Denver | 223,085 |
| Younger Family Limited Partnership II | Denver | 223,085 |
| Sysco | Denver, Colo. | 148,229 |
| Kennth J. Rosenthal Rev Living Trust | St. Louis | 116,564 |
| Clifton Larson Allen LLP | Broomfield, Colo. | 83,853 |
| Oakledge Capital, LLC | Madison, Conn. | 81,798 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | Robert E. Eggman | Carmody
MacDonald |
St. Louis |
| Thomas H. Riske | |||
| Danielle Suberi | |||
Cash Collateral Motion
The debtors request the use of cash collateral on an interim basis through (a) 30 days after entry of the interim order if the final order has yet to be entered or (b) if the cases are converted or a trustee or examiner is appointed. The company proposes the following adequate protection to its prepetition lenders: replacement liens (excluding avoidance actions and their proceeds), superpriority administrative expense claims and financial reporting. The carve-out for professional fees is $400,000.
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case no. 20-43963.
- Motion for an expedited first day hearing
- Motion to pay critical vendors
- The debtors seek approval to pay up to $250,000 on account of critical vendor claims and 503(b)(9) claims.
- Motion to pay employee wages and benefits
- The debtors estimate that they owe approximately $95,000 on account of prepetition payroll obligations.
- Motion to use cash management system
- The company has bank accounts with Key Bank, First Republic Bank and Royal Bank of Missouri.
- Motion to maintain insurance programs
- Motion to provide utilities with adequate assurance
- Application to employ Carmody MacDonald as counsel
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