Why Captain D's Was Thrown Overboard To Save Del Taco

Last Updated May 20, 2010 5:26 PM EDT

This week's restaurant-chain selloffs stand out from the recent steady stream of deals that have seen many well-known names change hands, including Carl's Jr., Hardee's, On the Border, and Papa Murphy's. In private firm Saggitarius Brands' sale Wednesday of its two brands -- southern fish 'n' chips chain Captain D's and fast-Mexican icon Del Taco -- the company essentially sacrificed one brand to save the other.

With both chains in debt and struggling, 550-unit Captain D's was sold off for an undisclosed sum to major industry player Sun Capital Partners, while 515-unit Del Taco was recapitalized with a new $160 million term loan and $39 million in revolving credit. The newly formed Del Taco owner, known as Del Taco Holdings, also got an equity infusion of undisclosed size from Goldman Sachs Mezzanine Partners, with participation from existing investors Charlesbank Capital Partners and Leonard Green & Partners.

The two restaurant chains are of nearly equal size, and both hold number-two positioning in their fast-food niche -- Captain D's behind Long John Silver's, and Del Taco behind Taco Bell. Both their competitors are even owned by the same parent company, Yum! Brands (YUM). Also, Del Taco is about one-tenth the size of 5,600-unit mega-chain Taco Bell, while Captain D's is only half the size of Long John Silver's. So why keep Del Taco and toss Captain D's overboard? Four reasons:

  • Healthier food. Captain D's is known for fried fish and more fried fish, a high-calorie splurge fewer and fewer Americans can indulge. Fast-Mexican food, on the other hand, has the reputation for offering at least some lower-fat options such as fajitas and grilled-chicken tacos.
  • Stronger brand. With its concentration of restaurants in southern states, Captain D's has less national visibility than Del Taco, whose units are primarily in populous California but also scattered nationwide, with expansion taking place in Florida, Colorado and Michigan.
  • Stronger finances. It's hard to track in a private company, but it appears Del Taco's debt situation wasn't quite as bad as Captain D's. The latter brand needed to negotiate new loan terms last year, but those terms expired this year and Standard & Poor's outlook was the company wouldn't be able to meet its loan covenants. This likely is what caused Saggitarius to put Captain D's on the market back in January.
  • Fresher marketing. Judging from its Web site, Captain D's has been in a holding pattern on this front -- it has yet to so much as put out a press release this year. By contrast, Del Taco has been building customer rapport with its Raving Fan club, which gets special discounts and parties.
Del Taco photo via Flickr user jasonlam; Captain D's photo via Flickr user hattiesburgmemory
  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include Allbusiness.com and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.