Priszm QSR.UN-T the once high-flying fast-food restaurant operator run by Toronto entrepreneur John Bitove, is facing a key deadline next week as it struggles to stay afloat in a sea of financial problems.
The troubled firm should know by Jan. 14 if it will be able to sell 232 of its more than 400 KFC, Taco Bell and Pizza Hut restaurants, in a deal that would generate about $46-million and help alleviate its financial woes. That’s the deadline for the purchaser, a numbered company that runs similar restaurants in Europe, to reveal if it is satisfied with its due diligence and has lined up financing.
In the meantime, however, the bad financial news continues to pile up. On Friday, Priszm said it was withholding a $2-million royalty payment it was supposed to pay on Jan. 5 to Yum Restaurants International (Canada) Co., the franchisor of its outlets.
This is the third such monthly payment in a row that Priszm has skipped, and follows a string of other missed payments. On Dec. 31 the company failed to make an interest payment on a $30-million convertible debenture due that day, and it has also been unable to pay the interest or principle on $65-million of senior debt that came due in December.
Mr. Bitove, who took Priszm public in 2003, was not available to comment Friday, but his spokeswoman Mat Wilcox said he is involved in a flurry of negotiations.
“John and his team have been meeting and going through all the negotiations, and that’s moving ahead,” Ms. Wilcox said. Those discussions are taking place on a number of fronts, she said. “[It is] all over the place.”
A key set of talks concerns the franchise agreement between Priszm and Yum, and focuses on the capital costs of upgrading many of the Canadian restaurants. That will determine how much financing is needed from other lenders, Ms. Wilcox said.
Sabir Sami, president of Yum’s Canadian operations, said his company decided to allow a deferral of its monthly royalty payments to support Priszm while these negotiations take place.
The franchise agreement for 70 restaurants was set to expire on Nov. 10, but it was extended by Yum to Dec. 10 and then to Jan. 15.
By then, Priszm should know if it has successfully sold the block of restaurants – all of its properties in Ontario and British Columbia – and gleaned the cash that will result from the deal.
Still, there is a large amount of uncertainly surrounding Priszm, said Brad Sturges, an analyst at CIBC World Markets in Toronto, because the money generated from the sale won’t be enough to cover all the debt that is maturing. It is also unclear what will become of its remaining restaurants in Quebec and Atlantic Canada.
The situation will also have a significant impact on another of Mr. Bitove’s ventures, Scott’s REIT, the landlord for many of the Priszm restaurants. Depending on what happens to Priszm, “there are a number of pieces that could still fall and hurt the REIT,” Mr. Sturges said. “There could be a domino affect.”
Priszm units, which were initially sold at $10 each in 2003 and peaked around $13 in 2006, have been on a downward trend for years, as eating habits shifted away from the fast-food products its restaurants offered. The units dropped below $1 early in 2010, after the company eliminated its distributions late in 2009. In the first nine months of 2010, Priszm lost $1.5-million on sales of $289-million.
