Golden Nugget owner Landry’s Restaurants interested in bankrupt Claim Jumper

By Steve Green

Sunday, Sept. 26, 2010 | 3:49 p.m.

Casino and restaurant operator Landry's Restaurants Inc. is looking to expand by buying the bankrupt Claim Jumper Restaurants LLC chain.

Landry's owns the Golden Nugget hotel-casinos in Las Vegas and Laughlin. Its Southern Nevada restaurants include the Rainforest Cafe at the MGM Grand, a Landry's on Sahara Avenue and six restaurants at the hotel-casinos.

Landry's is being taken private by Chairman and CEO Tilman Fertitta, who has also recently expressed interest in acquiring the Atlantic City Hilton hotel-casino.

Landry's filed papers in Claim Jumper's Delaware bankruptcy case on Friday objecting to Claim Jumper's current plan to be sold to a group holding some of Claim Jumper's debt for what Landry's said totals $52.8 million, including $24.5 million in cash and assumption of some liabilities.

Landry's said that sales plan should be called off since it's offering more for the company -- $27 million in cash and elimination of a $1 million breakup fee in the offer currently on the table.

Landry's said its bid is also superior in that there's no financing contingency while the pending GRP Acquisition Corp. offer is contingent on a $30 million equity infusion.

GRP is an affiliate of Black Canyon Capital LLC, which is part of Los Angeles investment company Canyon Capital Advisors LLC.

Houston-based Landry's said in its petition that it's one of the largest restaurant operators in the nation with 174 locations in the United States and Canada.

Noting it generated adjusted EBITDA of $207.9 million in 2009, Landry's said: "Landry's submits that it has the financial wherewithal to acquire and successfully operate the debtor's restaurants."

EBITDA is a profitability measure meaning earnings before interest, taxes, depreciation and amortization.

"Landry's is a substantial participant in the restaurant industry, and has a history of expanding its business operations through the successful acquisition and integration of existing restaurant concepts into its restaurant portfolio," Landry's said in its filing, in which the company asked to be named the "stalking horse" bidder for Claim Jumper as opposed to GRP being the stalking horse.

"Any transaction with GRP should also be closely scrutinized to ensure that the debtors are receiving maximum value. GRP appears to be closely related to the debtors’ management and the holder of a significant amount, if not a majority, of the debtors’ pre (bankruptcy) petition debt. Thus, GRP’s bid should be subject to the high level of scrutiny required for insider transactions," attorneys for Landry's wrote in the filing.

Irvine, Calif.-based Claim Jumper, which filed for Chapter 11 bankruptcy reorganization Sept. 10, was founded in 1977 by Craig Nickoloff, who also filed an objection Friday to the current sales plan.

Claim Jumper has 45 western-style restaurants -- including three in Las Vegas and Henderson -- in eight states.

Claim Jumper said it's in default on $74.1 million in debt under a pre-bankruptcy bank credit agreement and that it's also in default on payment obligations for $70 million in subordinated notes held by Black Canyon Capital -- plus $41.8 million in deferred interest on those notes.

Claim Jumper said its results were hurt by the recession, with revenue of $293 million in 2007 falling to $233 million in 2009. A $6.3 million operating profit in 2007 was followed by losses in 2008 of $5.2 million and in 2009 of $5.8 million.

Nickoloff, the Claim Jumper founder, said in his limited objection that he's a shareholder and creditor of Claim Jumper and unsuccessfully had bid to buy the company last year and again this year.

Saying it appears Black Canyon has already taken control of Claim Jumper's board, Nickoloff's filing said he is "understandably concerned about the integrity and transparency of the proposed sale process" and wants the sales process delayed so more details of the proposed sale to the Black Canyon affiliate can be disclosed.

Attorneys for Claim Jumper have not yet responded to either of the objections.