Team of Specialists Tackle Job of Helping Client Revive Irvine Ranch

Two years ago, the new owner of the Chalet Gourmet grocery store turned to a young bankruptcy lawyer for help in reviving the small Los Angeles grocery. Owner Daniel Bobroff soon made a success of the Sunset Boulevard store with a mix of fresh flowers, exotic cheeses and specialty cuts of meat.

On Wednesday, a federal bankruptcy court judge cleared the way for Bobroff and other investors to revitalize another struggling gourmet food enterprise: Irvine Ranch Farmers Market.

Bobroff turned again to Jeffrey I. Werbalowsky for help. But this time Werbalowsky acted not as a bankruptcy attorney, but as an investment adviser. Werbalowsky is part of a team that not only advises troubled firms but also invests in them.

The team--part of the Houlihan, Lokey, Howard & Zukin Inc. consulting firm of Century City--is not only developing a plan for its client Chalet Gourmet to rescue Irvine Market, but also putting up a $1-million credit line.

“We believe if properly managed, Irvine Ranch could be a very, very profitable business,” said Irwin N. Gold, who works with Werbalowsky.

With the blessing of Irvine Ranch’s creditors, U.S. Bankruptcy Judge John Ryan in Santa Ana approved Chalet Gourmet’s plan to spend the first $1.5 million of a $4-million financial package designed to revive the operation.

Irvine Ranch has seven stores in Orange County and two in Los Angeles.

Bobroff, who has the controlling interest in Irvine Ranch, now serves as chairman, president and chief executive of the chain. He was said to be meeting with Irvine Ranch employees and not available for comment late Wednesday.

But Werbalowsky said: “We got our financing approved and the creditors committee supported us. . . . The judge also gave us time to negotiate with all the (Irvine Ranch) landlords and we anticipate their cooperation.”

Gold said Chalet Gourmet plans to refurbish several Irvine Ranch locations, starting with the most profitable store at the Beverly Center in West Los Angeles.

The Irvine Ranch rescue also exemplifies how the Houlihan Lokey consulting firm has evolved. After years of evaluating companies and securities for clients, the firm is now investing in ailing companies as well through its HLHZ Capital division.

“We are making a transition from (providing) financial advice to providing capital,” said Kenneth T. Friedman, president of HLHZ Capital.

To increase its ability to aid more companies, the company is negotiating with a fund manager to establish a new capital fund.

“We aim to be the premiere boutique investment banker,” said Friedman.

Science and Art

While its bailout efforts receive the publicity, the company’s primary business is providing detailed appraisals and a variety of technical reports required for mergers, acquisitions and leveraged buyouts.

“What Houlihan does is some science and some art,” said one client, Peter de Vaux, chief financial officer of Venice-based Chiat/Day ad firm.

In the past two years, Houlihan Lokey has provided financial advice for companies involved in $50 billion worth of transactions, according to President O. Kit Lokey.

Founded 16 years ago by a group of certified public accountants and financial consultants, Houlihan Lokey also values securities and provides sophisticated, computerized credit analyses. In the past five years, the privately held corporation has grown from about 30 employees to 110, Lokey said. It has offices in New York, San Francisco, Chicago and Los Angeles.

In addition to crafting a reorganization plan for Irvine Ranch, the financial restructuring group is helping client United Trend Investment Ltd. design a reorganization plan for Aca Joe Inc., a San Francisco clothing wholesaler.

“If it doesn’t have red ink, we are not interested,” Werbalowsky said. But HLHZ Capital does not invest in all of the clients. It is not investing in Aca Joe, for instance, but is providing advice, officials noted.

Werbalowsky said the new capital fund will give the restructuring group more clout.

“You really have to have more money to call the shots,” Werbalowsky said. “Even $1 million or $2 million can go a long way.”

Although Houlihan is expanding its investments in promising but troubled companies, its core business remains asset valuation.

While Price Waterhouse and Chase Manhattan Bank provide similar services, Houlihan specializes in putting a value on companies and their stock prior to employee buyouts.

Under the laws governing federal retirement plans, a company’s stock must be independently appraised before an employee stock ownership plan can take place.

One of Houlihan Lokey’s biggest consulting projects was acting as financial adviser for Holiday Corp. of Memphis, parent company of the Holiday Inn hotel chain.

In 1987, Holiday Corp. needed a recapitalization program to fend off a threatened takeover attempt by New York hotel magnate Donald J. Trump. The program included special dividends to stockholders and the sale of some hotels.

“They were some of the best advisers we had during this whole process,” said Timothy V. Williams, Holiday’s vice president and controller. “I can’t say enough about the quality of their work.”