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If it worked for an airline, why not for Quiznos?


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Two years ago, Quiznos completed a debt-for-equity swap with one of its lenders, Avenue Capital, which took control of the chain from its ousted owners, the Schaden family.

The Denver-based sub chain would have been better off if it simply filed for bankruptcy protection.

This isn’t just hindsight, in light of news that Quiznos is, once again, looking to restructure its debt and could file for credit protection early this year. Longtime observers of the company had predicted two years ago the deal only delayed problems.

Quiznos had a lot of debt, $875 million. The deal with Avenue cut that by nearly a third, but $600 million was still too much for a chain that was shedding franchisees like a dog sheds hair in July.  

The company gets most of its revenue from the sale of food and paper to operators, and any steps the company took to cut those charges would make debt payments that much more difficult. That left one solution: Get sales up, fast. It did pump $75 million into marketing and made other moves, but they weren’t enough.

This is why a bankruptcy would have done the chain some good: It would have seriously reduced debt, enabling it to take the significant steps needed to stabilize franchisees’ finances.

After all, American Airlines went bankrupt, bought US Airways, and emerged from the courthouse as the country’s largest air carrier. It should work for a sub chain, right?

 

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