Report: Quiznos preparing to file for bankruptcy

Quiznos, the sandwich restaurant chain, is reportedly about to file for bankruptcy. Citing unnamed sources, The Wall Street Journal said the company has been in talks with creditors about a plan to restructure its $570 million in debt, although a deal has not yet been worked out.

The news comes just two years after Avenue Capital Group, a New York-based hedge fund, became majority owner of the chain in an out-of-court, debt-for-equity restructuring deal.

Quiznos, known for its toasted sandwiches, has been struggling for some time.The Denver-based chain, which at its peak in 2006 had over 5,000 franchises in the U.S., is reportedly down to about 1,200 or less. Declining sales, as well as growing competition from Subway, Blimpie, Schlotzsky's, Jimmy John's and other sandwich chains, have also eaten away at Quiznos' bottom line.

Part of problem has been the company's years of disputes with its franchisees, some of whom who say Quiznos overcharges them for food and supplies. In 2009 Quiznos agreed to settle a series of class-action lawsuits by its franchisees for about $95 million.

Another lawsuit, filed last year by a group of store owners, accused Quiznos of devising "a way to steal hundreds of millions of dollars from its store owners each year by creating pass-through companies, such as American Food Distributors."

That plan, the lawsuit continued, allowed Quiznos "to add significant hidden mark-ups to the food, paper and other supplies that franchise owners were contractually obligated to buy from Quiznos, marketed as the 'Mandated Essential Goods'."

For the past several years, Quiznos has aggressively sought to expand overseas, and currently has locations in 30 countries outside the U.S. But back home for Quiznos, "it just seems the system continues to go downhill," said reporter Janet Sparks, who has been covering the restaurant chain for years and writes for Blue MauMau, a news site for franchise owners.

"These are people who have bought into this system, and there are thousands that have lost everything," she noted.

Quiznos franchise owners approached for this article declined to comment. And for its part, Quiznos has not commented on reports of its impending Chapter 11 filing. In fact, one of its latest press releases, issued earlier this week, was only about the company launching a new line of pasta offerings.