The predominant creditor of the bankrupt Hooters Hotel will attempt an unusual gambit to try to take it over.
Los Angeles-based Canyon Capital Realty Advisors has proposed allowing all of the other creditors in the Hooters Chapter 11 case to be paid off, narrowing the dispute to it and the current ownership. Typically, payouts come at the end of a case once a comprehensive repayment plan has been approved by a U.S. Bankruptcy Court judge.
Canyon Capital, owed about $178 million through an affiliate, is in a position to make this move because it holds almost all of the notes that were given the hotel as collateral. As a result, it stands ahead of the other creditors in the repayment line but would voluntarily cede that position.
Although Canyon Capital has been a Hooters lender for several years, it purchased most of the debt in the past year for about 22 cents on the dollar.
Hooters owners have listed the value of the hotel at $46.7 million, putting it well underwater against the face value of the debt.
Canyon Capital calculates that it would cost about $2 million to pay off everyone else. In its August financial statement, Hooters listed $10 million in cash and only $3.2 million in current liabilities, so it would still have money on hand if U.S. Bankruptcy Court Judge Bruce Markell granted the request at a scheduled Oct. 5 hearing.
If it wins, Canyon promised in court papers that it would either seek to dismiss the bankruptcy or be allowed to foreclose.
It had launched foreclosure proceedings in the summer after negotiations to work out a deal failed, but Hooters filed the Chapter 11 to stop it.
At the same hearing, Hooters will ask for permission to hire Innovation Capital to search for fresh capital or a possible buyer. It contends that a debtor is typically permitted a chance to reorganize on its own terms in the early months of a case.
Also, Hooters managers said in court documents that cash flow from operations has improved significantly this year.
Canyon Capital, on the other hand, has made a specialty of taking over and reviving distressed commercial real estate.
Contact reporter Tim O'Reiley at email@example.com or 702-387-5290.