New England Biz Law Update
A Florida-based private equity firm that bought the iconic Friendly’s restaurant chain in 2007 and managed it straight into Chapter 11 bankruptcy by 2011 used a common industry practice to buy back the assets of the business for a bargain while slashing pension benefits.
The U.S. Bankruptcy Court in Delaware approved a settlement between Friendly’s and its unsecured creditors last December, allowing Sun Capital to characterize $50 million of $268 million it had invested in Friendly’s as a loan and to credit the amount toward the company’s so-called “stalking horse bid” to repurchase the assets.
“The reason for Chapter 11 was that Sun Capital was attempting to get rid of [Friendly’s] debt so that it could try to continue the brand and make some money in the future,” says James C. Donnelly Jr. of Mirick O’Connell in Worcester, Mass.
Donnelly represents an organization that considered bidding on the assets but decided against it.
He also represents the 97-year-old co-founder of Friendly’s, Presley Blake.
Blake and his brother started Friendly’s in Springfield, Mass., in 1935, selling “ice cream, hamburgers and grilled cheese sandwiches for the Catholics on Friday.” He owned 10 percent of Friendly’s stock before Sun Capital took the company private in 2007.
The U.S. Pension Benefit Guarantee Corp. opposed Sun Capital’s attempt to count any of the $268 million toward its bid for Friendly’s assets. A spokesperson for the PBGC legal department says neither stalking horse bids nor crediting loans toward such bids are public policy concerns, but that the facts of the case indicate that the money had been an investment, not a loan.
Sun Capital’s attorney in the bankruptcy case, Andrew D. Gottfried of Morgan, Lewis & Bockius in New York, did not respond to a request for comment, nor did Sun Capital.
As Friendly’s heads out of bankruptcy, the only nice thing Blake has to say about the management is that “they have a good product.”
