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Where'd the money go?

And just like that, the lending market tightens. It was but a few months ago that private equity groups liked putting money into small restaurant chains. But then the bubble in sub-prime mortgages burst, making lending markets a lot tighter. “The cost of capital has gone up dramatically,” says Mark Saltzgaber, a San Francisco expert in restaurant financing. Still, some operators have been able to find funding. Here are two of their stories.

Vivid Restaurant Concepts, Nashville

Deal: Undisclosed amount of private equity, plus $11 million in loans
Partners: Group led by Northwood Ventures (equity), GE Capital Solutions (debt)

When David Blackburn and partner Paul Schramkowski were looking for between $4 million and $14 million to finance their acquisition of Amerigo, a four-unit Italian concept based in Nashville, they were open to considering any package funders wanted to offer. The private offering drew interest from six funders; some offered equity deals, others debt packages.

The partners chose what Blackburn describes as “a smaller amount of equity” offered by Northwood Ventures, a New York private equity firm, plus an $11 million loan package from GE Capital Solutions. “We felt like we had a little more control with a smaller group of equity partners,” says Blackburn.

“We were very attracted by the quality of the Amerigo operation and in particular the high caliber of the management team,” says Hal Wilson, managing director of Northwood.

Family Sports Concepts, Tampa

Deal: Undisclosed amount of mezzanine debt
Partner: Levine Leichtman Capital Partners

Pursuing mezzanine debt—a complex financial instrument that incorporates equity-based options with lower-priority debt—was a big step for Family Sports, franchisor of the 230-unit Beef O’Brady’s chain. CEO Chuck Winship’s goal was to pay off debt, restructure shareholder agreements and create an incentive plan for senior management. The nine-month process “put a pretty big burden on us,” Winship says.

Winship carefully assessed Levine Leichtman, interviewing companies in its portfolio. “How these people act in
a business environment will affect you greatly down the road,” says Winship.

Terms were undisclosed, but Levine typically invests $10 to $75 million in companies with revenues between $50 and $500 million.                   

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