Fair Lanes Inc. said yesterday that it would file a bankruptcy reorganization plan after reaching a deal with its biggest creditors to fix the finances of the debt-ridden company.
The Hunt Valley-based operator of 106 bowling and entertainment centers, including 33 in the Baltimore-Washington area, said its agreement with creditors would allow it to file a prepackaged plan, typically hastening approval by the court and forcing the deal on possibly recalcitrant minority bondholders.
Both Fair Lanes Inc. and its parent, Fair Lanes Entertainment Inc., were expected to file for Chapter 11 bankruptcy protection today, said Mac Clayton, chief executive of the two companies.
Under terms of the agreement, holders of $138 million in Fair Lanes debt, stemming from a 1989 leveraged buyout, would slash its debt to $90 million. Debt holders also agreed to cut the interest rate to 9.5 percent from 11.875 percent. In return, they would receive 94 percent of the stock in the company.
The remaining 6 percent would go to a second group of bondholders who lent $45 million to Fair Lanes Entertainment, which was created by a group of investors who bought Fair Lanes Inc. in 1989.
The $45 million in debt would be forgiven, Mr. Clayton said. The holders of that debt also would get warrants entitling them to buy up to 20 percent of Fair Lanes Inc.
Investors in the leveraged buyout would see the value of their stock wiped out.
"The company needs more money to invest in the business," said Mr. Clayton, an original investor in the 1989 buyout who took the reins of the company last year. "And they [the bondholders] said 'OK.' . . . I really see this as a new beginning for Fair Lanes."
Mr. Clayton said the plan would save the company $11.5 million a year in debt service payments. He said $2 million of that saving would be added to the $4 million 1994 capital improvement budget, allowing Fair Lanes to rehabilitate 25 bowling centers this year and do less-major renovations at 12 more centers.
"It's not like a real bankruptcy, where you go in [to court] hoping to make a deal," he said. Mr. Clayton said he will remain as chief executive.
The reason bondholders approved writing off more than $90 million in debt was that they were not primarily the original lenders. The biggest bondholder, Balfour Investments Inc., said it bought its share of the company's debt about six months ago.
"We certainly didn't pay 100 cents on the dollar," Balfour President Jay Goldsmith said. Balfour, like other major bondholders in Fair Lanes Inc., specializes in buying securities of companies whose financial distress is well-known, Mr. Goldsmith said.
The identity of the Fair Lanes Entertainment bondholders is not publicly known.
"It's a good deal," Mr. Goldsmith said. "It gets the pressure off the company."
Mr. Clayton said the company has negotiated with the owners of at least 80 percent of the bonds in each class of creditors and is confident of approval.