Quiznos Reaches Agreement to Restructure Debt and Strengthen Financial Position

Quiznos, one of the nation’s premier quick-service restaurant chains and pioneer of the toasted sandwich, has reached agreement with a significant majority of its first- and second-lien lenders on a consensual financial restructuring plan that will reduce the Company’s current debt substantially and provide an infusion of $150 million of new equity capital to help position Quiznos for future growth.  The Company expects to begin soliciting approval of the proposed transaction immediately.

The proposed transaction provides for Avenue Capital, an investment firm that currently holds a significant amount of the Company’s first- and second-lien debt, to become the majority owner of the Company through a $150 million equity infusion and the conversion of debt to equity. Avenue’s equity funding will be used to reinvest in the business and retire a portion of the Company’s first-lien debt.

“We are pleased to have reached this agreement which will strengthen our balance sheet and allow us to strengthen our brand and customer experience,” said Greg MacDonald, Quiznos Chief Executive Officer.  “This recapitalization will provide a path to eliminate nearly $300 million, or nearly one-third, of our current debt load and provide $75 million of new funding to help support our business initiatives and pay fees. We appreciate the support that our lenders have shown for our team during this process.  We would like to thank our franchise owners, employees and vendors who remain committed to providing high-quality, fresh ingredients and superior customer service that keep Quiznos customers coming back for more.”  MacDonald also noted, “Quiznos expects to operate on a business as usual basis during this process and we will honor all current vendor obligations while we pursue our out-of-court restructuring process.”

Quiznos has entered into a restructuring support agreement with parties representing approximately 75.1 percent of its first-lien loans and 72.8 percent of its second-lien loans. The transaction provides for the restructuring of these loans and all of the equity interests in the Company through either an out-of-court exchange offer or a prepackaged plan of reorganization under Chapter 11 of the United States Bankruptcy Code.

Under terms of the proposed exchange offer, the holders of approximately $650 million in first-lien loans will be repaid $75 million in cash and will extend the maturity of the balance of their loans until the five year anniversary of the closing of the restructuring.  All first-lien lenders will be given the opportunity to exchange an aggregate of approximately $200 million of their first-lien debt for new second-lien debt on a pro rata basis if they so desire.  As part of such exchange offer, certain lenders have already agreed to exchange approximately $150 million of their existing first-lien loans for new second-lien loans. Holders of approximately $225 million of second-lien loans will exchange their loans for a pro rata share of 40% of the new equity of reorganized Quiznos. The closing of the exchange offer is conditioned upon, among other considerations, 100% of the aggregate principal amount of the first- and second-lien loans being validly tendered and not withdrawn. In addition, in order to consummate the out-of-court exchange offer, the Company is seeking significant concessions from certain other creditors, including certain former executives of the Company, certain landlords, and certain former area developers.

As an alternative to the Exchange Offer, the Company will simultaneously commence a solicitation of acceptances of a pre-packaged Plan of Reorganization to implement a restructuring pursuant to a voluntary case under Chapter 11 of the U.S. Bankruptcy Code. The Company would make a voluntary Chapter 11 filing only if it does not receive tenders from 100% of the first- and second-lien holders or does not satisfy other conditions to closing, including sufficient concessions from certain other creditors and certain landlords.  The terms of the pre-packaged Chapter 11 plan would provide less favorable treatment for the lenders and certain other creditors and landlords than under the proposed out-of-court exchange offer.

Quiznos’ financial advisor for the restructuring is Moelis & Company and its legal advisor is Paul, Weiss, Rifkind, Wharton & Garrison L.L.P.  Vinson & Elkins L.L.P. is acting as the company’s financing counsel.