Jan 13, 2022 - Economy & Business

Checkers hopes to serve up a turnaround and then a refinancing

The drive-thru window of a Checkers fast-food restaurant.

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Checkers and Rally's, backed by private equity firm Oak Hill Capital Partners, "hopes" to refinance its debt within a year, conditioned upon stable markets, CEO Frances Allen told Axios.

Why it matters: The beleaguered burger chain is making headway under Allen, who was brought in to turn around the business in early 2020.

By the numbers: Revenue from Jan. 1 through late October of 2021 was $271 million, up 8% compared to the same period a year prior, she said.

  • EBITDA is projected to improve to $60 million by 2025 from just under $40 million currently, Allen added.

What's next: Once Checkers improves its EBITDA by 50%, the company can then talk about an exit.

  • Oak Hill bought the business in 2017 for $525 million and then injected it with extra $20 million in cash about a year ago.

Between the lines: The drive-thru specialist overhauled its kitchens, which allows it to introduce new products such as chicken tenders.

  • The company is also rolling out a new artificial intelligence (AI)-powered voice assistant to take orders, alleviating labor shortages.

Catch up fast: Considered a "top market concern loan" by Fitch Ratings, the credit rating agency lists the company as having nearly $247 million in loans.

  • Moody's Investors Service, which reviewed the restaurant operator's Caa2 corporate rating last March, said a year ago Checkers had $211 million in first- and second-lien term loans.
  • The rating agency also noted at the time the company incurred a limited default by converting a $52 million second-lien loan into series C payment-in-kind (PIK) preferred equity.

The other side: Allen described the debt as "old baggage" and "old news" and as something she plans to "readdress."

  • She pointed out that price wars instigated by McDonald's and then Burger King in 2017 caused EBITDA to "go backwards," and it's how the burger flipper ended up on distressed watchlists.

Of note: The chain's fries have been voted best in the business three times since 2017, Allen claimed.

The bottom line: While many restaurant chains were negatively impacted by the pandemic, Checkers had already perfected contactless food service over the past 37 years via its double drive-thrus.

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