Landry's Restaurants seeks refinancing of 7½% notes in light of delayed 10-K

By Jennifer Chiou

New York, July 25 - Landry's Restaurants, Inc. announced plans to obtain new financing to replace its current credit agreement and $400 million of 7½% senior unsecured notes.

The company said that it will not be able to file its 10-K for the year ended Dec. 31, 2006 until completion of a voluntary internal review of its historical stock option granting practices.

As a result, U.S. Bank, NA, the trustee, notified the company that a majority of noteholders may declare the principal and accrued interest due and payable immediately.

Landry's said it believes it will be able to refinance the notes, adding, however, that due to the recent tightening of the credit markets, the terms of the refinancing may be less favorable than could have been obtained a few weeks earlier.

Moreover, the company said it previously had obtained a waiver for the covenant of its $450 million credit agreement with Wachovia Bank, NA requiring it to deliver in a timely manner its financial statements for the year ended Dec. 31, 2006 within 90 days of the end of that fiscal year.

The waiver, however, does not apply in the event of an acceleration of the maturity of the 7½% notes.

There is about $97 million outstanding under the credit agreement.

"Due to the recent downturn in the credit markets and the increase in interest rate spreads, our 7½% below market notes did not provide enough of an economic return to our bondholders and prompted their decision to accelerate the notes," chief financial officer Rick Liem said in a news release.

"The recent $545 million credit facility secured for the Golden Nugget properties is not impacted, nor are our other unrestricted subsidiaries," Liem said.

On March 30, the company initially said it did not expect to be able to file its 10-K on time.

U.S. Bank had given the company until April 20 to cure the violation to keep the notes from being accelerated.

The indenture trustee previously indicated that it would not seek acceleration of the notes unless holders of more than 25% of the notes asked it to do so.

In 2006, the company began a voluntary internal review of its historical stock option granting practices dating back to 1993, and that initial review was completed in March with no intentional backdating of options or fraudulent retroactive documentation regarding options found.

However, a review of the company's historical stock option granting practices is being conducted by the independent directors serving on Landry's audit committee, with assistance from independent legal counsel.

The company said this review is expected to be completed in its second fiscal quarter, and, as a result, it will not be able to file its 10-K until completion of the review.

Although the company has not completed its financial statements, based on the initial review, Landry's said it believes that the total non-cash charges over the 14-year period resulting from the review should be $8.6 million, after tax.

The outcome of the stock option granting practices review is expected to impact the company's 2006 and previous period results.

In addition, as a result of the loss from discontinued operations primarily resulting from the sale of Joe's Crab Shack in the fourth quarter of 2006, the company said it expects to report a net loss for 2006.

Landry's also said it completed the $19 million sale of a single restaurant location on Wednesday.

The purchase price is subject to an agreement to pay the buyer $2.6 million over the next 30 months in order to allow the company to continue to operate the restaurant.

Landry's operations include restaurants under the trade names Landry's Seafood House, Chart House and Rainforest Cafe, as well as the Golden Nugget Hotels and Casinos in Las Vegas and Laughlin, Nev. The company is based in Houston.

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