Houston-based Landry’s Restaurants Inc cut a deal with its main group of bondholders on Monday afternoon, resolving litigation that had consumed the company over the past month (prior posts here). Essentially, the bondholders gave Landry’s an 18 month window to refinance the $400 million in debt in return for Landry’s agreeing to bump the interest rate on the bonds from 7.5% to 9.5%.
Although the deal allows Landry’s to avoid refinancing the debt now at an even higher rate of interest, my sense is that the entire episode has been fairly disastrous for Landry’s. First, as noted here awhile back and as Loren Steffy recently pointed out, Landry’s has not been doing all that well in a brutally competitive restaurant market even before this dustup with its bondholders. A couple of weeks ago, Landry’s CEO Tilman Fertitta publicly claimed that refinancing of the bond debt “was no big deal,” but then testified during the injunction hearing this past Friday that forcing Landry’s to refinance the bond debt now would irreparably harm the company. That sounds like a pretty big deal to me. Meanwhile, Landry’s will now be looking to refinance a large chunk of junk debt in a shaky credit market that knows that the company just got done acrimoniously suing the holders of the debt. That approach generally does not induce favorable terms from debt refinanciers.
Landry’s looks as if it is heading for some very choppy waters.