An eight-unit Denny’s franchisee is selling all of its stores out of bankruptcy after an “immediate and lasting impact” from the COVID pandemic.
The stores, now available for bidding, are based across Louisiana, Illinois, and Missouri. The units are owned by T&S Food Services II, LLC, a franchisee organization formed by Mark Sullivan and Jesse Tyson.
National Franchise Sales, an M&A advisory and brokerage firm, is overseeing the sales process. In a news release, the company said the restaurants “represent a compelling opportunity for qualified buyers to acquire under-performing assets within one of the most recognized brands in family dining.”
“With these Denny’s locations now available, buyers have the chance to acquire established operations with strong brand equity,” Alan Gallup, partner and lead advisor for the National Franchise Sales Asset Recovery Team, said in a statement. “Our team is dedicated to facilitating an efficient process while providing all necessary resources for serious buyers.”
In June 2019, Sullivan and Tyson officially bought restaurants across Louisiana, Illinois, and Missouri. They subsequently purchased an additional location in Louisiana, as well as one in South Carolina and Georgia.
T&S “hit the ground running” as soon as it acquired the units and became cash-flow positive by Q4 2019, court documents state. Although the group was optimistic about the stores’ future, COVID hit shortly afterward. Nationwide, Denny’s sales dropped nearly 80 percent in April 2020.
Initially, all of T&S’ restaurants shut down, except for three, which remained open for carry-out only. The company pivoted by selling food for curbside pickup to generate revenue and prevent mass layoffs, according to court documents. T&S also received two Paycheck Protection Program loans and an Economic Injury Disaster Loan through the Small Business Administration. Tyson provided funding himself as well.
“In short, T&S fought tooth and nail every way it could to keep operations afloat and retain employees during the pandemic,” chief restructuring officer Rolando Allen said in the bankruptcy filing.
Still, T&S was forced to close two locations—one in Georgia and one in Illinois—that suffered too much from the pandemic and had staffing issues.
In the following years, T&S was able to obtain financing to sustain operations and grow in new territories (Lake Charles, Lafayette, and Baton Rouge, Louisiana). Additionally, the company resumed 24/7 operating hours, saw improved traffic and sales, and projected a full return to pre-pandemic sales by 2024. However, as the franchisee reached the end of 2024, traffic was still below pre-COVID levels, and the operator had to shut down another location in Anderson, South Carolina, that wasn’t making enough money.
T&S’ Lake Charles restaurant is open and profitable, but the Lafayette unit has not yet become operational and is draining the company’s financial resources. Also, because of zoning constraints, T&S was unable to open a Denny’s restaurant at the Baton Rouge property, but it is still on the hook for real estate taxes, additional carrying costs related to the property, and the loan securing the property. T&S attempted to sell the Baton Rouge property and work with landlords to set itself up for profitable operations, but no buyer has been found and lease negotiations didn’t progress quickly enough to create long-term viability, Allen said in court documents.
The company faces tax issues too. In May, the Illinois Department of Revenue ordered T&S to stop operations at two Illinois locations because of tax payment delinquencies. The franchisee eventually reached a resolution with the state government to re-open the units so it could have enough revenue streams to pay creditors and maximize the value of the restaurants.
T&S, among other things, has negotiated extended loan terms, cut corporate wages, attempted to negotiate better lease terms with landlords, foregone distribution to its members, and shuttered restaurants not earning sufficient revenue.
“However, these efforts have not been successful and there are insurmountable and compounding obstacles to recovery,” Allen said.
The franchisee owes close to $6 million in secured debt and $3.3 million in taxes.
