KFC, Taco Bell and Pizza Hut file for bankruptcy in Canada.

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Priszm Income Fund files for CCAA restructuring in plan to sell assets

By Craig Wong, The Canadian Press | The Canadian Press – Thu, 31 Mar, 2011 5:42

PM EDT

Priszm Income Fund (TSX:QSR.UN) was granted court protection from creditors

under the Companies' Creditors Arrangement Act on Thursday as part of a plan to

assist in the sale of its fast food restaurants.

Hammered by falling sales and little prospect of improvement in the

traditionally weak first half of the year, the fund had been struggling with its

debt before it sought a court-supervised restructuring.

" The KFC and Taco Bell brands experienced significant same-store sales declines

in 2009, 2010 and the first quarter of 2011, " the company said in a court

filing.

The income trust delayed a $46.6-million sale of 231 KFC, Taco Bell and Pizza

Hut restaurants in Ontario and British Columbia to Soul Restaurants Canada Inc.

earlier this year because certain conditions had not been satisfied. The cash

from the sale was going to be used in part to help pay for franchise upgrade

requirements and other needs.

Priszm said Thursday it has received a number of expressions of interest for its

remaining restaurants.

" The company is in the process of reviewing these offers and will be negotiating

with the potential acquirers in order to maximize recovery for the company's

stakeholders and provide for a going concern solution for the business, " Priszm

said in statement.

The Toronto Stock Exchange suspended trading in the fund's units and convertible

unsecured subordinated debentures and started a review to delist the fund from

the exchange.

The units last traded for eight cents on the Toronto Stock Exchange.

The fund holds a 60 per cent interest in Priszm Limited Partnership, which owns

and operates more than 400 KFC, Taco Bell and Pizza Hut restaurants in seven

provinces across Canada with 6,500 employees.

Court protection from creditors, the company said, will allow for operations to

continue uninterrupted during the restructuring. The company's existing secured

lenders have agreed to provide up to US$3 million in additional financing during

the court-supervised process. Chief financial officer Deborah Papernick will

serve as chief restructuring officer.

Priszm tried to increase profitability in 2010 when it closed nine restaurants

and worked to reduce food waste and increase productivity. The company had also

hired investment banking firm Canaccord Genuity to help restructure its debt.

Canaccord Genuity contacted 74 groups, however challenging credit markets and a

lack of agreement on certain business issues resulted in no deal, the company

said.

Priszm and its related companies had about $98.8 million in short and long-term

debt and $39.1 million in accrued and unpaid liabilities at March 30.

Yum Restaurants Canada is the franchisor of the KFC, Taco Bell and Pizza Hut

brands in Canada.

" The CCAA process gives Priszm protection to restructure its business and

ultimately, that will be positive for the brands in Canada, " said Sabir Sami,

Yum Restaurants International's general manager for Canada.

Meanwhile, 's Real Estate Investment Trust (TSX: SRQ.UN), a property

company which owns many of the buildings and strip plazas where KFC and Taco

Bell stores operate, welcomed the bankruptcy protection move.

" The CCAA filing facilitating the sale of Priszm's KFC and Taco Bell restaurants

creates an opportunity for 's REIT to further diversify our tenant base and

strengthen our property portfolio across Canada, " said Sutherland, the

company's chief financial officer.

At one time, KFC/Taco Bell restaurants represented 99 per cent of the tenant

base of 's REIT, but that has dropped to about 50 per cent today.

Priszm withheld a $975,000 interest payment on its $30-million convertible

debenture at the end of last year.

Priszm said it is in default in its obligation to complete upgrades to a number

restaurants as required under the franchise agreement and did not pay a

franchise renewal fee due on Aug. 10, 2010.

The company has also not paid a continuing fee due under its franchise agreement

since December.