Dec. 21 (Bloomberg) -- Friendly Ice Cream Corp., the 76-year-old restaurant chain, will cancel an auction after receiving no offers to compete with its proposed sale to the private-equity firm Sun Capital Partners Inc.
Yesterday’s deadline to submit bids for tomorrow’s proposed auction passed with no challengers stepping up to test Sun Capital, according to an e-mail from Ross M. Kwasteniet a lawyer for Friendly.
The company will notify the bankruptcy court today of the cancellation. U.S. Bankruptcy Judge Kevin Gross will consider approving the sale to a Sun Capital unit at a hearing scheduled for Dec. 29.
Sun Capital, Friendly’s current owner, will pay about $75 million and retain ownership through its unit while allowing the Friendly’s chain to slough off debt.
Friendly, which opened in 1935 with one shop in Springfield, Massachusetts, sought bankruptcy protection in October citing the struggling economy and rising commodity costs.
Debt is about $297 million and assets are valued at more than $100 million, according to court documents.
The Wilbraham, Massachusetts-based company, commonly known as “Friendly’s,” closed 63 sites as part of the bankruptcy filing. Another 424 locations will stay open, Friendly said.
Accord With Creditors
Sun Capital, based in Boca Raton, Florida, reached a settlement with the committee of unsecured creditors and Pension Benefit Guaranty Corp. allowing it to use about $50 million in debt to bid for the company, according to a transcript of a court hearing provided by Kwasteniet.
Since there was no competition, Sun Capital didn’t need to use the debt.
The creditors and the PBGC disputed Sun Capital’s ability to use debt forgiveness to bid at the auction, known as credit bidding. The creditors argued the notes owned by the Sun Capital unit should be treated like equity.
Sun Capital will make a $2.5 million cash payment, which is expected to go to unsecured creditors, as part of the settlement.
The case is In re Friendly Ice Cream Corp., 11-13167, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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