Troubled Spectrum Files for Chapter 11

Cash-flow problems, compounded by a dispute over the sale of several restaurants, have pushed the owner of the Spoons Bar & Grill and National Sports Grill chains to file for protection from creditors in U.S. Bankruptcy Court for the second time in three years Tuesday.

Eateries operated by Spectrum Restaurant Group Inc. of Irvine have seen sales slow because of the effects of high energy costs on its customers, said Anwar Soliman, Spectrum’s owner and chief executive.

“People who used to eat in dinner houses are now eating in coffee shops, and the people who ate in coffee shops are eating in fast-food places and the others are eating at home,� he said.

But the main trigger for the filing appears to be a motion filed Monday in Bankruptcy Court in Santa Ana by BET Associates, a private fund that had lent Spectrum $9 million.

In the filing, BET alleged that Spectrum had sold or was in the process of selling nearly $2 million in restaurant properties -- including a Spoons in Cerritos and a National Sports Grill in Torrance -- but planned to use the proceeds for general operations rather than paying down debt.

BET’s motion sought to sequester any funds from the sales. However, Spectrum’s bankruptcy filing blocks that case from moving forward, said Penelope Parmes, an attorney representing BET.

Soliman, a longtime Orange County restaurant executive and former CEO of American Restaurant Group, said the dispute turned on whether his company had the right to keep proceeds from the sale of Spoons units to buyers who want to convert the restaurants to franchised National Sports Grills.

“We totally disagree with the allegations that they are entitled to those proceeds,� said Evan Smiley, a Costa Mesa bankruptcy attorney representing Spectrum. “We were allowed to use those proceeds in our business and not turn over those proceeds to BET.�

Spectrum is current on its payments to BET, Smiley noted, but has accrued about $3 million in unpaid liabilities to vendors and landlords that resulted in “a cash-flow crisis� as sales slowed. The company has struggled to make debt payments that resulted from its previous bankruptcy reorganization, he said.

“I think the plan was overly optimistic,� Smiley said.

Spectrum has annual revenue of about $45 million, he said.

It owns about 20 restaurants and franchises an additional 80, Soliman said.

As part of the reorganization, Smiley said, Spectrum will put its Grandy’s chain on the block, which would include the sale of a handful of restaurants the company owns outright and the franchise payments and royalties from the remaining eateries in the chain.

In its filing, Spectrum listed assets of $10 million to $50 million and liabilities in the same range, including nearly $20 million owed to unsecured vendors and almost $1 million to the state Board of Equalization. Among its other debts, Spectrum owes nearly $100,000 to a seafood vendor and $54,000 for produce.

Spectrum has struggled to gain traction since its previous reorganization.

“I know that Spoons has closed a lot of locations over several years and it seems like the chain is dying out,� said Bob Sandelman, who heads San Clemente-based restaurant consulting firm Sandelman & Associates. “There’s no surprise that the parent company would be struggling.�

One problem Spectrum faces is that it operates nine different restaurant concepts and none have substantial scale, Sandelman said.

The other chains it operates and franchises are Prego Ristorante, Tutto Mare, Chianti, MacArthur Park, Harry’s Bar, Guayamas and Crabby Bob’s.

Spoons, for example, lists just eight locations on its website. Similarly, National Sports Grill lists four, including one in the Philippines.

“It’s hard to spread the marketing and support many concepts, none of which has many locations,� Sandelman said.

The company was created in a spinoff from American Restaurant Group, owner of the Black Angus Steakhouse, in 2000.