Checkers and Rally's announced Tuesday that it's now owned by a group of creditors.
Majority ownership moved from private equity firm Oak Hill Capital Partners to senior lenders Arbour Lane Capital Management, Garnett Station Partners, and Guggenheim Investments. As part of the deal, Checkers reduced its long-term debt from $300 million to $75 million and was also given $25 million for store remodeling and growth initiatives.
"This is a positive development for the company and our stakeholders," CEO Frances Allen said in a statement. "This refinancing significantly strengthens our balance sheet by, among other things, equitizing our short-term debt maturities. The recapitalization provides us with the financial flexibility we need to better position ourselves to invest in and continue growing our business."
Allen—previously CEO of Boston Market—took the same role at Checkers in early 2020, following a 13-year run from Rick Silva. A few months later, the Wall Street Journal reported the chain was restructuring and seeking help from financial advisers. The publication said the company had almost $300 million in debt from when Oak Hill Capital acquired it for $525 million in 2017. The private equity firm purchased the restaurant from Sentinel Capital, which had owned it since 2014.
But Checkers' double drive-thru model carried it through the pandemic. Company and franchised restaurants earned high-single-digit same-store sales growth in 2020. At the start of 2021, Oak Hill Capital announced that it was providing the brand with a $20 million capital injection after successful debt amendment efforts. Additionally, in the past few years the company transformed traditional drive-thrus into mobile ordering lanes, unveiled a new Fit Kitchen that comes with less walking and improved equipment, and partnered with Presto to roll out drive-thru voice ordering to about 250 company-owned restaurants.
Checkers finished 2022 with $858 million in systemwide sales, an AUV of $996,400, and 806 restaurants systemwide—551 franchises and 255 company-owned stores.
In January, Bloomberg reported Checkers was negotiating a plan to deal with debt maturities. The brand revealed in April that it entered an agreement with lenders addressing a $25 million credit revolver that was supposed to be due. The maturity date was pushed aside so Checkers could finalize its recent restructured debt agreement.
Robert Bhagwandat, senior director of franchise development, told QSR in April the chain planned to open 40-50 stores in 2023. Checkers is encouraging growth with incentives, such as discounting royalties by 50 percent for anyone who opens a store this year and providing 0 percent royalty fees for multi-unit franchisees who open their third location in a year. The brand said it's interested in both coasts, particularly California, Nevada, and Arizona on one end and North Carolina and South Carolina on the other.
Allen described Checkers' cash position as "strong" and said the company's balance sheet "no longer has the drag of legacy debt." The CEO is confident that the brand can grow profitably and have long-term success.
"It is important to underscore how optimistic I am about the future of this Company," Allen said. "Our strong financial performance throughout the pandemic, and through the first two quarters of 2023 while in the midst of inflationary pressures, gives me great confidence that our strategic five-year plan is working."