Carrols Corp. revises LBO debt to fuel fast BK system

Nation's Restaurant News, August 30, 1993 by Alan Liddle

SYRACUSE, N.Y. -- Carrols Corp., the leading Burger King franchisee, said it is ready to grow at a quick clip thanks to a refinancing plan that has restructured the cash-siphoning debt remaining from its 1986 leveraged buyout.

Company officials acknowledged that the debt restructuring is part of a long-range strategy that could lead Carrols Corp. back into the public arena. The company's stock was traded on the New York Stock Exchange before the LBO.

"We're probably on the way to going public," Alan Vituli, Carrols' chairman and chief executive officer, confided. He indicated that "timing" and "growth" would determine when and if a public offering would be feasible.

Based in Syracuse, Carrols Corp. is Burger King's largest franchisee with 196 licensed restaurants in 10 states in the Northeast, Great Lakes region and the South.

The company is the 81st largest in the U.S. foodservice industry based on projected domestic revenues of 185 million for the current fiscal year, according to Nation's Restaurant News' Top 100 report.

"Our growth plans call for increasing the number of restaurants we operate by 20 to 30 a year," Vituli said. "We have grown some [in recent yeas], but we've been constrained by our principal-repayment schedule."

Vituli said his company's debt restructuring involved issuing $110 million in 11.5-percent senior notes that mature in 2003 and require only interest payments until then. The company also arranged for $25 million in revolving credit for reserves, growth and liquidity, he said.

Proceeds from the notes, Vituli said, will be used to substantially reduce or eliminate the company's institutional debt, which requires regular principal payments as well as interest payments.

"This lowers interest rates on our debt and changes the maturity schedule so we have a lot more capital for growth," Vituli said. "Instead of paying banks, we're able to reinvest in the business."

Under the new financing structure, debt amortization and debt maturities will amount to less than $1 million annually for the next 10 years, company officials reported.

In essence, Carrols Corp. is betting that improved cash flow will enable it to grow large enough to easily handle principal repayment beginning in 2003.

Vituli said his company plans to meet its expansion goals through acquisitions as well as new construction. A new smaller restaurant prototype -- one that seats 72 people as opposed to the 100 now accommodated in Carrols-owned BK units -- will play a prominent role in future construction, he said.

"It's about two-thirds the cost of a traditional building and has a very efficient kitchen," Vituli said of the downsized prototype. "It seems suitable for smaller markets and provides attractive returns [on investment]."

Carrols Corp., like most other players in the quick-service segment, is aware of the potential for growth through the development of non-traditional sites, such as those in arenas, airports and supermarkets. But Vituli characterized the movement into non-traditional markets as "a wait-and-see phenomenon."

Asked if a second concept might figure into Carrols Corp.'s expansion plans, the executive would only say, "We presently operate franchised Burger King restaurants."

Company officials declined to name new markets, if any, being targeted for expansion.

Carrols Corp. can embark on its ambitious expansion campaign, in part, because of the low turnover among its employees, Vituli said.

"There is extraordinary tenure among our people, from the home office down to the unit level," he said. "Unlike smaller restaurant organizations, we can give people an opportunity to grow."

Carrols Corp. president Daniel Accordino illustrates the company's success at retaining good employees and providing them with a meaningful career path, Vituli indicated. Accordino, he pointed out, started with the company 22 years ago as an assistant restaurant manager.

Vituli said he was pleased by the recent appointment of James Adamson as chief executive at Burger King Corp., replacing Barry Gibbons at the sluggish Grand Metropolitan PLC subsidiary. Adamson, a 25-year veteran of the retail industry, has said he wants to "push up top-line sales" and add restaurants to the chain, which is expected to end the current fiscal year with more than 6,000 domestic units and domestic systemwide sales of about $6.5 billion.

"We're very excited about having a person whose background is marketing at the helm," Vituli said of the appointment of Adamson to head the franchisor.