Checkers hopes to serve up a turnaround and then a refinancing

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Checkers and Rally, backed by private equity firm Oak Hill Capital Partners, “expected” to refinance its debt within a year, conditioned on stable markets, CEO Frances Allen told Nerdshala.

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Why this matters: The beleaguered burger chain is moving under the leadership of Allen, who was brought in in early 2020 to turn the business around.

By numbers: She said revenue from January 1 to the end of October of 2021 was $271 million, up 8% from the same period a year ago.

  • Allen said EBITDA is projected to improve to $60 million by 2025, from less than $40 million currently.

What will happen next: Once Checkers improves its EBITDA by 50%, the company can talk about exiting.

  • Oak Hill bought the business in 2017 for $525 million and then injected it with an additional $20 million in cash about a year ago.

Between the lines: The drive-thru specialist renovated its kitchen, which allows it to introduce new products like chicken tenders.

  • The company is also rolling out a new Artificial Intelligence (AI)-powered voice assistant for taking orders, which will address the labor shortage.
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Catch up fast: Considered a “top market concern debt” by Fitch Ratings, the credit rating agency lists the company as having approximately $247 million in debt.

  • Moody’s Investors Service, which reviewed the restaurant operator’s Caa2 corporate rating last March, said Checkers had $211 million in first- and second-lien term loans a year ago.
  • The rating agency also noted at the time that the company had limited default by converting a $52 million second-lien debt into Series C payment-in-kind (PIK) preferred equity.

Second aspect: Allen described the loans as “old stuff” and “old news” and as something she plans to “redress”.

  • She pointed out that the price wars instigated by McDonald’s and then Burger King in 2017 caused EBITDA to “go backwards,” and thus Burger Flipper ended up on the distressed watchlist.

of comment: Allen claims the chain’s fries have been voted best in the business three times since 2017.

Bottom-line: While many restaurant chains were negatively affected by the pandemic, Checkers had already ramped up contactless dining service through its double drive-thru over the past 37 years.


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