Greenleaf gives Vicorp equity for debt; Rusty Pelican operator gives former parent a stake after defaulting on loan

Nation's Restaurant News, Jan 13, 1992 by Milford Prewitt

DENVER -- Greenleaf Ventures, owner of the Rusty Pelican and Carlos Murphy dinner-house chains, has given an equity stake to the Vicorp family restaurant operation in exchange for the forgiveness of debt.

The arrangement strengthens ties between the two foodservice operations, which parted company in 1986 when Vicorp spun off Greenleaf -- then known as Vicorp Specialty Restaurants -- to a management-led group for $110 million.

As part of that deal, Green-leaf issued a $10 million note to Vicorp and other creditors.

Greenleaf recently defaultted on the note. To satisfy the debt obligation, The company plans to give Vicorp and the other creditors an equity stake in lieu of a subordinated debenture, according to Peter F. Doane, Vicorp's chief financial officer.

Doane said it was difficult to calculate the size of the stake because Greenleaf is privately owned.

Dan Bylund, chief financial officer of Greenleaf, said he, too, didn't know the percent of Vicorp's ownership in the company.

Doane explained that Vicorp expects its equity position in Greenleaf to appreciate and ultimately satisfy Greenleaf's obligations.

In forgiving Greenleaf's debt, Vicorp took a onetime $7.7 million write-off against its annual earnings.

The hit against profits, coupled with the early retirement of some debts, led to a 49-percent drop in Vicorp's annual net income, to $6.3 million, on a 7-percent gain in revenues, to $422.4 million, for the year ended Oct. 27. Before the charges, pretax operating income was up 10 percent, to $43.8 million.

Doane said Vicorp is banking on the likelihood that its equity position in Greenleaf will appreciate and ultimately satisfy Greenleaf's obligations to Vicorp over time.

Swapping debt for equity has become a popular way for debt-laden restaurant companies to reduce their burdens. Within the past 18 months, Rax Restaurants, Skolnik's, Al Copeland Enterprises and Southland all have given a percentage of their enterprises to creditors.

Recently, Service America and Furr's/Bishop also devised plans to swap debt for warrants issued to creditors.

While few refinancing schemes forgive debt, as it the case with Vicorp and Greenleaf, none was as dramatic as the case of Copeland Enterprises, where lenders not only forgave more than $140 million in loans but also became owners of 85 percent of the company.

Meanwhile, Vicorp said it also paid off more than $1.2 million in debts during the year, further contracting profits.

The charges against earnings led to a $4.6 million loss for the three months of the fourth quarter, on a 5-percent rise in revenues, to $96.1 million.

A year ago the company reported a fourth-quarter profit of $2.9 million. Fourth-quarter pretax operating income was up 10 percent, to $9.9 million.

Vicorp is the parent of the Village Inn and Bakers Square family restaurant chains.

Greenleaf is based in San Diego, Calif.