Burger King franchisee Sun Holdings makes a play for Uncle Julio's

The large operator has acquired the debt in the casual-dining Mexican chain, paving the way for a potential acquisition.
Uncle Julio's
Sun Holdings acquired the debt on Uncle Julio's Restaurant Group, according to sources. | Photo: Shutterstock

Sun Holdings, the giant operator of brands like Burger King and Popeyes and the owner of Taco Bueno, is making a play for the struggling casual-dining chain Uncle Julio’s.

The Farmers Branch, Texas-based company has acquired the debt on Uncle Julio’s Restaurant Group at a discount on the secondary market, several sources with knowledge of the situation have told Restaurant Business.

In so doing, Sun Holdings is putting itself in a prime position to acquire the company, likely through a debt-for-equity swap. But that could also prompt a bankruptcy filing by Uncle Julio’s.

Sun Holdings, Uncle Julio’s and its private-equity owner, L Catterton, either would not comment for this piece or have not responded to requests for comment.  

Uncle Julio’s operates its flagship polished-casual Mexican restaurant chain along with the four-unit Hacienda Colorado and a virtual brand called Savage Burrito. Uncle Julio’s finished 2023 with 37 higher-volume restaurants. A typical restaurant generates $6.7 million in revenues per year.

The company closed one location in Chicago in March. The system generated $247.5 million in total sales last year, up 1.8% from 2022, according to the Technomic Top 500 Chain Restaurant Report.

Uncle Julio’s has averaged 2.9% system sales growth over the past five years, slightly higher than the average for other traditional casual-dining Mexican concepts.

L Catterton acquired the concept in 2017. At the time it had 29 locations, and the private-equity firm was making a bunch of investments in restaurant chains, including Anthony’s Coal-Fired Pizza.

Uncle Julio’s last year named Scott Lawton CEO. Lawton is the co-founder and CEO of another L Catterton concept, Bartaco. At the time, the move was said to precipitate a growth push for Uncle Julio’s.

The secondary debt markets have become a popular spot for brand acquirers. Lenders have been unloading the debt on companies struggling to repay their bills, typically at a discount to the face value of that debt.

The holder of that debt holds sway in such scenarios, because the debt is typically secured with the assets of the business. Lenders can call the loan and force the borrower to either repay or sell the business to pay off the loan.

More lenders have been avoiding that whole process by selling loans for troubled companies on the secondary market, because it’s easier for them to do so than to go through a bankruptcy process.

If the lender doesn’t think the value of the brand is worth the amount of debt on that company, it may decide then to sell the debt and move on.

Investors in such deals can get a jump on the process by acquiring the debt at a discount. Other potential buyers would have to bid more than the value of the debt to outbid those investors.

It is uncertain what Sun Holdings’ next step will be to possibly acquire Uncle Julio’s, or whether L Catterton will pay off the debt to keep the brand. That’s what Biglari Holdings did after Fortress Restaurant Group acquired the debt on the burger chain Steak n Shake and tried pushing the brand into bankruptcy.

Several restaurant chains have filed for bankruptcy in recent months, and others like Uncle Julio’s are in danger of such a fate after their debt was sold on the secondary markets. Rubio’s, the Mexican chain, closed 48 restaurants and filed for bankruptcy after its debt was sold to Jeff Crivello, the former CEO of Famous Dave’s.

Another potential filing is BurgerFi, which in 2021 merged with the L Catterton-owned Anthony’s Coal-Fired Pizza. Crivello also bought the debt on that company.

This is not the first time Sun Holdings and its owner, Guillermo Perales, have worked to acquire a company by acquiring the debt. Sun had previously bought the Taco Bueno chain by first acquiring the company's debt

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