FRANKLYWNOW - Aliaa Story - Flow Winter 2013

Aliaa Story - Flow Winter 2013

Aliaa Flow Winter 12 - The once-booming sandwich chain Quiznos is stumbling two years into a major turnaround effort, prompting the company to seek concessions from creditors owed nearly $600 million.

The Denver-based chain, known formally as QIP Holder LLC, has struggled with store closures and tension with franchisees. It recently missed a payment on a loan, and has been negotiating to restructure some or all of its debt load with creditors, who have hired bankers and lawyers, people familiar with the matter said.

Those talks have led to a forbearance agreement with the creditors designed to give Quiznos more time to hash out a deal, Quiznos Chief Executive Stuart Mathis said in a memo Wednesday to franchisees that was reviewed by The Wall Street Journal. A person familiar with the matter said the agreement allows Quiznos to maintain its liquidity as negotiations with lenders progress.

"We have reached an agreement with our lenders and equity partners, and look forward to continuing to work constructively together to establish a framework that will position Quiznos and our franchisees for future growth and success," Quiznos said.

Quiznos was once among the few national sandwich chains that could credibly challenge the dominance of Subway, owned by Doctor's Associates Inc. Founded 32 years ago, Quiznos gained popularity with its toasted subs and had nearly 5,000 restaurants world-wide by its peak in 2008.

But the chain has foundered in recent years even as other sandwich chains like Potbelly Corp. and Jimmy John's Franchise LLC have thrived on consumer demand for quick, convenient meals. Chicago-based Potbelly, which raised more than $100 million in an initial public offering in October, has grown to nearly 300 shops from 200 in 2008. Subway now has nearly 41,000 stores globally, including more than 26,000 in the U.S., up from 34,000 stores world-wide in 2010.

Quiznos, meanwhile, shrank to about 3,000 stores world-wide two years ago, and to around 2,100 today, including roughly 1,500 stores in the U.S., people familiar with the matter said. Hundreds of the U.S. stores are underperforming and could close in the next year, some of these people said.

In early 2012, Quiznos reached an out-of-court restructuring deal with creditors that shaved its debt by more than a third to approximately $570 million and resulted in investment firm Avenue Capital Group taking majority ownership. That July, it hired Mr. Mathis, who previously oversaw United Parcel Service Inc.'s retail network, and once helped lead franchising for Domino's Pizza Inc. He replaced other top executives, and pledged to attract new franchisees.

But the turnaround plan hasn't met expectations and Quiznos has missed key performance targets, some of the people said. That has hurt some junior loans owed to creditors including Avenue and Fortress Investment Group LLC. Fortress and Avenue are discussing restructuring alternatives with senior creditors like Oaktree Capital Management, the people said. While bankruptcy protection could be an option, the creditors are hoping to reach a deal out of court, they said.

Franchisees long have complained that Qu
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