DIP dimensions: Avado Brands Inc

DIP dimensions: Avado Brands Inc

Byline: Jonathan Berke

Known mostly as a distressed-debt investor, DDJ Capital Management LLC has joined the list of nontraditional lenders that are providing debtor-in-possession funding these days. It recently spiced up its small but growing DIP portfolio by providing a to Tex-Mex restaurant chain Avado Brands Inc.

Madison, Ga.-based Avado, which operates Don Pablo’s Mexican Kitchen, had a choice of lenders. Its secured lenders — Fortress Investment Group LLC and Hilco Capital LP, also nontraditional DIP providers — offered to provide post-petition financing. But for reasons neither the debtor nor DDJ would disclose, Avado went with DDJ.

Wellesley, Mass.-based DDJ isn’t a novice when it comes to DIP loans. It recently teamed with Delaware State Capital LLC to pay down $70 million of bankrupt Mississippi Chemical Corp.’s prepetition and DIP obligations, while also agenting DIPs for Samuels Jewelers Inc. and InterDent Inc.

When pricing the Avado DIP, DDJ stayed within restaurant industry norms. It priced the facility at either 9.75% or prime plus 575 basis points, whichever is greater, and charged a commitment fee of 2%, or $1.2 million. It also gave Avado a unique option: The debtor could convert the DIP into an exit facility for an additional fee of $1.8 million, or 3% of the actual commitment.

Other bankrupt Tex-Mex restaurant chains have gotten similar terms. Chi-Chi’s Inc. got a $19.1 million DIP in October from Wells Fargo Foothill Inc. that was priced at prime plus 525 basis points. Wells also charged the Irvine, Calif.-based chain a similar commitment fee of 2% ($382,000).

Like others in the Tex-Mex sector, Avado has been struggling. The company, which filed for Chapter 11 protection on Feb. 5 with the U.S. Bankruptcy Court for the Northern District of Texas in Dallas, defaulted on $66.1 million of notes in July. Despite assertions that it was in compliance with covenants for the notes, more problems came in October, when the company’s chairman and CEO, Tom E. DuPree Jr., resigned.

DDJ, by virtue of acquiring a large interest in Avado’s 9.75% notes, wanted to see the company sold or reorganized. Now, as a DIP and possibly an exit lender, DDJ has an even stronger connection.

“Clearly, DDJ has an interest in seeing the company emerge from bankruptcy,” says Avado’s local co-counsel, Deborah Williamson of Cox & Smith Inc.

COMPANY: DDJ Capital Management LLC

COMPANY: Avado Brands Inc.

COMPANY: Fortress Investment Group LLC



COPYRIGHT 2004 Gale Group