Einstein Bros. bagels looks at restructuring to stay afloat

Phil Levine

Friday, March 31, 2000 | 11:12 a.m.

The future of Einstein/Noah Bagel Corp. remains in doubt as the company attempts to restructure its corporate financing.

But a representative for the Golden, Colo.-based firm -- owner of the Einstein Bros. and Noah's New York Bagels chain -- said retail sales are up, and company officials believe "there's a bright future ahead."

"Our store operations continue to improve," said Einstein spokeswoman Anita Marie Hill. "There were several steps to our (financial) recovery, and we are only one step away -- securing financing -- from accomplishing our goals."

Einstein currently employs about 100 people at its six Las Vegas locations.

Despite its current financial situation, Hill said Einstein is looking to expand its Las Vegas presence.

"We like Las Vegas a lot, it's a very important market for us," she said.

"We're currently looking at two additional sites for expansion in the Las Vegas area."

She declined to identify the sites under consideration.

Einstein President and Chief Executive Officer Robert Hartnett said the company is negotiating with holders of $125 million in bonds and $54.4 million in other debt, hoping to convert debt into equity.

"The bondholders have indicated a lot of interest," said Hartnett. "Negotiations are in progress, and I hope they will be completed sooner rather than later."

In a filing with the Securities Exchange Commission, Einstein said financial problems raised "substantial doubt about the company's ability to continue as a going concern."

However, Hartnett is quick to point out the company's future is far from bleak.

"The SEC filings always paint the worst-case scenario, but we feel confident that once negotiations (with bondholders) are completed we will have a very bright future ahead," he said.

In November, the company hired investment banker Donaldson, Lufkin and Jenrette to examine ways to restructure its debt and obtain new financing.

Earlier this month, the company was delisted from the Nasdaq stock exchange.

In its annual report, Einstein states "the company is currently engaged in discussions with an ad hoc committee of holders of its $125 million subordinated debentures ... the company is also engaged in discussions to obtain new bank financing to replace its secured credit facility.

"There can be no assurance the company will be successful in implementing the contemplated balance sheet restructuring, or in obtaining new bank financing."

Einstein reported a $3.5 million net loss for the fisal year that ended in December. Sales for the year totalled $375.5 million.

With about 539 stores in 29 states and the District of Columbia, Einstein is the largest U.S. chain of bagel restaurants; all stores are company-owned.

The company was formed in 1995 through the combination of four regional bagel retailers: Brackman Bros. Bagel Bakery of Salt Lake City; Bagel & Bagel in Kansas City; Ft. Lauderdale-based Offerdahl's Bagel Gourmet and Baltimore Bagel Co. of San Diego.

In addition to a wide selection of bagels, Einstein sells sandwiches, roll-ups, soups and salads and has a catering service.

As of March 17, Boston Chicken Inc. held approximately 51 percent of Einstein's voting stock.

From its inception in 1995 through March 2000, Einstein also received its administrative services from Boston Chicken.

However, in November 1998, Einstein began a restructuring program aimed at distancing itself from Boston Chicken; as of this month, Einstein ceased purchasing services from that company.

Hill said the company hopes to move forward on its own, and is currently negotiating with creditors to finalize the required financing.

"We had to separate ourselves from Boston Chicken," said Hill. "We are currently talking to our bond and equity holders, and feel confident we will successfully complete our restructuring plans very soon."

Adds Hartnett: "Las Vegas is exploding, and I can see us continuing to grow to as many 10 or 12 stores over the next few years as that market grows."