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Famed eatery a flop?
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May 4, 1999: 6:47 p.m. ET
Planet Hollywood teeters on bankruptcy after missing bond, bank payments
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NEW YORK (CNNfn) - Planet Hollywood, the splashy theme restaurant chain launched through the wallets of several motion picture stars, is mulling a number of tactics to remove millions worth of debt from its books, including bankruptcy, sources said Tuesday.
The Orlando-based company reportedly formed an internal creditors committee this week after failing to make a $15 million bond-interest payment, originally due April 1, within a required 30-day grace period. Holders of the company's bonds confirmed the interest payment was missed.
The company also missed a $12.5 million bank-loan payment due March 31. The bank's chief lender, SunTrust Bank Central Florida, did not return calls seeking comment on whether that payment was made.
According to industry experts, Planet Hollywood (PHL) essentially now faces only two courses of action to pay off its existing debt: bankruptcy or a merger/bailout.
The company did not return several calls seeking comment.
Taking a bite out of debt
While company officials mull their options, corporate bond holders are clamoring to exchange their holdings for company equity to get the debt from their books.
"We think the [stock] is probably worthless now," said George Schultze, a manager of distressed securities at Schultze Asset Management, an investment advisory firm in Metuchen, N.J. "What does look appealing is the bonds. We're looking to sell."
Schultze said the Planet Hollywood bonds are trading currently for 24 cents on the dollar. He said bond managers ideally would like to exchange the bonds at 100 percent value for company equity.
At least one bond holder said the most attractive scenario would involve selling the bonds to someone like Saudi Arabian Prince al-Waleed, a major shareholder who owns more than 15 percent of the company's stock as well as Planet Hollywood's franchise rights for Europe and the Middle East.
Sources said company officials are reportedly prepared to offer bond holders a mix of equity and debt, something Schultze said they would almost assuredly reject.
If the company is unable to secure a merger partner or a large cash payout from a top shareholder like al-Waleed, it appears seeking bankruptcy protection may be the only way for the once-popular restaurant chain to get back on its feet.
A falling star
Launched in 1991 by Hollywood film producer Keith Barish and theme restaurant entrepreneur Robert Earl, Planet Hollywood quickly established a worldwide brand name by featuring movie memorabilia in its restaurants and by attracting a star-studded investment pool, including the likes of Arnold Schwarzenegger, Demi Moore, Bruce Willis and Sylvester Stallone.
But the company's star quickly faded amid complaints about the quality of its food and investor concerns about its rapid expansion.
"A celebrity wouldn't be caught dead in that restaurant right now," said John Hamburger, editor of the Restaurant Finance Monitor, an industry newsletter. "So how do you turn it around when you've based the restaurant on celebrities and celebrities won't even go there?"
As restaurant traffic slipped, so did Planet Hollywood's stock. Shares in the company closed Tuesday unchanged at 13/16 per share, well off its 52-week high of $10 a share and a far cry from the more than $25 a share it traded at less than two years ago.
Investor concerns were heightened last month when the company revealed it lost $244 million, or $2.23 per diluted share, during fiscal 1998, a steep decline from the $8.3 million it earned a year earlier.
Restaurant officials simultaneously announced Planet Hollywood would miss its bank payment and postpone the bond-interest payments for 30 days, raising questions about its short-term viability.
Investors were likewise spooked by the surprise departures of board members Barish -- who resigned as chairman last November -- and Isadore Sharp in late March and April respectively.
Neither could be reached for comment. In a filing with the Securities and Exchange Commission, the company said Sharp left to concentrate on his job as chairman and chief executive of Four Seasons Hotels Inc.
Getting back on its feet
Still, despite its financial turmoil, some analysts believe the company strategically is headed in the right direction. All it needs is some fresh capital.
Under new President and Chief Operating Officer William H. Baumhauer, the restaurant chain has announced its intention to sell off its Official All Star Café, Cool Planet and Sound Republic concepts and refocus on its core Planet Hollywood business.
The firm also pledged to introduce a new menu, update the appearance of its restaurants and explore further international franchise opportunities.
"There is a lot of good to the operation," said Peter Romeo, editor of Restaurant Business, an industry newsletter. "It is an established brand. The locations they have are very valuable.
"I know they have some financial problems, but I'm not getting out my funeral garb yet."
Schultze likewise believes the company is ripe for turnaround and possibly could be earning between $25 million and $40 million within two years.
But first, it must confront its creditors. 
-- by staff writer Tom Johnson
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Planet Hollywood
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