Capital Markets

Landry’s Offers Summer Special to Bondholders

Wrapping up the repercussions from its options-dating probe, the restaurant chain settles on a higher interest rate for its notes.
Sarah JohnsonAugust 21, 2007

With Labor Day fast approaching, the finance folks at Landry’s Restaurants have been tearing through their summer to-do list. Topping the list was wrapping up a 12-year restatement to account for misdated stock options. Next, the company had to file its long-delayed 2006 annual report. Now that the seafood-restaurant chain is up to date with its financials, however, the seafood restaurant is waiting to formally settle a deal with its bondholders, who had charged the company with defaulting on a debt covenant for $400 million in senior unsecured notes.

Landry’s announced Monday that it has reached an agreement with the majority of the note-holders to reinstate the 7.5-percent notes and increase the interest rate to 9.5 percent. At 18 months, the company can redeem the bonds or the note-holders can call them. According to the company, the agreement was read into the record at the U.S. District Court for the Southern District of Texas, but a written deal hasn’t been formalized. That’s expected to happen by August 29.

Landry’s says the announcement means its executives can move on to other matters. “We are pleased to have our [Securities and Exchange Commission] filings in place and for the bond matter to be settled,” said Tilman Fertitta, chairman, president, and CEO of the Houston-based company. “We can now turn our focus to running the company and completing all of our projects.”

Earlier this year, Landry’s announced that it would restate results over a 14-year period and would need to delay filing its annual report for 2006 (it ended up restating financials from 1993 to 2005). The news was prompted by an internal review that found incorrect measurement dates for stock-option grants and led the company to take a non-cash, after-tax charge of $10.9 million. The matter was pretty much settled after the restatement: Landry’s had said its review didn’t uncover any intentional backdating or wrongdoing, and on August 3 said that the SEC staff decided to take no action.

But amid the flurry of filings — including the delayed quarterly reports for 2007 submitted to the SEC last week — Landry’s has been protesting the bondholders’ default claims and took out a temporary restraining order from the Texas court against their demands. The bondholders said that under the indenture, the company should pay the unpaid principal and accrued and unpaid interest immediately. At the time, the company said it was trying to refinance the 7.5-percent debt but made no promises for favorable terms considering the state of the credit market.

Earlier this month, Landry’s said it had secured financing to replace the unsecured notes but admitted that doing so would be “less advantageous to the company under its existing debt structure.” Under the current agreement with the current bonds reinstated at a higher rate, CFO Rick Liem said, “it was important at this time to retain the bonds in our capital structure and maintain our exiting $300 million bank-revolving credit facility.”

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