Capital Markets

End of Landry’s Buyout Shows Crisis Fallout

Replacing the going-private deal with a $400m refinancing of senior notes, restaurant chain cites "unusual circumstances" among lead lenders and th...
Stephen TaubJanuary 13, 2009

This week’s termination of the plan for a management buyout at Landry’s Restaurants Inc. — because of “unusual circumstances” with lead lenders Jefferies & Co. and Wells Fargo Foothill and the Securities and Exchange Commission — represents some unusual fallout from the credit crisis.

Instead, the restaurant chain now plans to refinance its existing $400 million in senior notes.

Landry’s said that the SEC was requiring the company to disclose certain information from a commitment letter issued by the lead lenders to Fertitta Holdings Inc. and Fertitta Acquisition Co., the vehicles being used to acquire Landry’s, and the company about the proposed financing for the going private transaction and for the alternative financing in the event the going private transaction did not occur.

Trouble is, the commitment letter issued by the lead lenders required that the information not be kept confidential.

The company said that it told the regulator about the lenders’ stipulation, and requested confidential treatment of the information. However, the lead lenders refused to disclose the confidential information, and warned that any disclosure by the company or Fertitta would be in violation of the terms of the commitment letter and result in the lead lenders terminating their commitments for both the going private and alternative financing transactions.

“In the event the lead lenders pulled their commitments, there would have been no financing available for the proposed going-private transaction, and the company would have lost its alternative financing commitment,” Landry’s said.

The termination of the going-private transaction would require no distribution of a proxy statement to shareholders, therefore preserving the confidentiality of the terms of the alternative financing until the final terms are decided, it noted.

The company, however, explained that it was not prepared to lose its alternative financing commitment, given the current economic environment and its need to refinance the senior notes. Therefore, it was unable to comply with a condition of the merger agreement which required distribution of an SEC approved proxy statement to company shareholders to vote on the adoption of the merger proposal. It then informed Fertitta that it would be unable to complete the transaction.

Landry’s owns and operates full-service, casual dining restaurants, with Rainforest Cafe, Saltgrass Steak House, Landry’s Seafood House, Charley’s Crab, and the Chart House among its brands. It is also engaged in the ownership and operation of select hospitality businesses, including the Golden Nugget Hotel & Casino properties in Las Vegas and Laughlin, Nev.

In June Landry’s agreed to be acquired by Fertitta Holdings, an entity formed by Tilman J. Fertitta, the Landry’s chairman, president, CEO, and founder. At the time he beneficially owned about 39 percent of outstanding common. In October Fertitta sought to pare the price tag, saying his debt financing was in jeopardy due to the company’s closure of two properties, the instability in the credit markets. and the deterioration of the casual fining and gaming businesses. The company then agreed to a price reduction of more than 35 percent.

Landry’s on Monday said that neither Fertitta nor it will be obligated to make any payments to each other as a result of the termination of the merger agreement. It said that the lead lenders had agreed to provide the alternative financing to refinance its outstanding 9.5 percent and 7.5 percent notes.