Quiznos
A Quiznos Spicy Pulled Pork sandwich (Andy Cross, The Denver Post)

Denver-based Quiznos is headed for its second major financial restructuring in two years as the sub-sandwich chain struggles with debt and an epidemic of store closures.

A debt restructuring or bankruptcy filing "has been expected, and it's inevitable," said Jonathan Maze, editor of Restaurant Finance Monitor. "The business model just does not work. Sales are falling and franchisees are struggling mightily."

The chain reportedly has defaulted on its loan covenants and has been negotiating for weeks with creditors.

The Wall Street Journal, citing unnamed sources, said Quiznos and a consortium of creditors are in the process of creating a so-called prepackaged bankruptcy that would restructure Quiznos' debt of $570 million.

"They need to stop the bleeding," Maze said. "They need to find a way to stop the unit closures and keep the franchisees from continuing to shut down their stores."

Quiznos did not respond Thursday to a request for comment.

The once-high-flying sandwich chain has been under heavy financial pressure as sharpened competition, waning sales and debt woes led to a string of store closings and financial losses.

Quiznos operated about 5,000 restaurants at its peak in 2008, but the count has since dropped to an estimated 2,100 worldwide, including 1,400 in the U.S.

New York hedge fund Avenue Capital Group acquired majority control of the chain in 2012 after a debt restructuring in which Quiznos' founder, Denver-based Consumer Capital Partners, forfeited its equity stake. In that deal, creditors agreed to write down about $300 million of Quiznos' $875 million debt, in exchange for equity in the firm.

Analysts say Quiznos has been hit hard by competition from Subway and other sandwich chains, and by legal challenges from franchisees who claim that Quiznos forces them to pay above-market prices for food and supplies.

In 2012, Quiznos attempted to stem the sales slide by dropping its focus on value and instead promoting a new line of menu items and higher-quality ingredients.

The chain agreed in 2009 to a $95 million settlement with 6,900 class-action franchisees who said the company overcharged them for supplies and failed to provide adequate marketing support.

A new round of lawsuits with similar claims by franchise owners were filed last year.

Steve Raabe: 303-954-1948, sraabe@denverpost.com or twitter.com/steveraabedp