Monday, February 23, 2009

$700M loss is just part of Outback parent's woes

Never mind the $506 million that Outback Steakhouse’s parent lost during the last three months of 2008, swelling its red ink for the year to a bloomin’ $739 million. The company is embroiled in enough big-dollar legal and financial complications to change its name to FUBAR.

First there’s the courtroom duel with T-Bird Nevada, a business entity formed by the Outback chain’s franchise operators in California. Outback’s franchisor, the privately held OSI Restaurant Partners LLC, guaranteed a $35-million line of credit for T-Bird, which intended to use the funds for securing sites. Last month, according to an SEC filing, OSI learned that T-Bird couldn’t repay the $33.3 million it had run up on the credit line.

OSI bought the credit note from T-Bird’s lender on Feb. 17 for about face value, then filed suit against the franchise group two days later to recover the $33.3 million.

Last Friday, Feb. 20, T-Bird counter-sued OSI for alleged breaking assurances the franchisor would buy the California stores and, apparently, their debt obligations. T-Bird is asking for $100 million in compensatory and punitive damages.

OSI asserted in the securities filing that the T-Bird suit is without merit and would be contested.

The parties don't even agree on how many Outback units have been opened by T-Bird's constituents. OSI says 41, while T-Bird says 53.

OSI also vowed to contest an arbitor’s ruling that OSI owes roughly $98 million to a single-store Outback franchisee in Argentina, American Restaurants Inc. The arbitor apparently decided that an OSI affiliate had wrongly terminated the development agreement. OSI said it filed an action in a court in Florida on Dec. 29 that challenges the ruling, and indicated it would seek a reversal of the award in the courts of Argentina as well as the United States.

But wait—there’s more.

OSI also has to contend with complications from its investment in a Kentucky track, Kentucky Speedway LLC. The SEC filing notes that the restaurant company owns 22% of Kentucky Speedway, and runs its catering and concession operations. It’s also a partial guarantor of $68 million in bonds that were issued by the speedway. Apparently $17 million still has to be repaid to bondholders, and OSI is on the hook for $2.5 million.

You have to wonder how a restaurant company, and one whose principals prided themselves on the simplicity of their operations, could get so entangled in financial wheelings and dealings.

If OSI had one more complication relating to loans and guarantees, perhaps it would’ve qualified for TARP funds.

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