BY Fraser Tennant
With debts of approximately $294m, US-based restaurant chain Red Lobster, along with its direct and indirect operating subsidiaries, has filed for Chapter 11 bankruptcy protection.
The company intends to use the bankruptcy proceedings to drive operational improvements, simplify the business through a reduction in locations, and pursue a sale of substantially all of its assets as a going concern.
In addition, the company has been working with vendors to ensure that operations are unaffected and has received a $100m debtor-in-possession financing commitment from its existing lenders.
As part of the Chapter 11 filing, Red Lobster has entered into a stalking horse purchase agreement pursuant to which Red Lobster will sell its business to an entity formed and controlled by its existing term lenders.
“This restructuring is the best path forward for Red Lobster,” said Jonathan Tibus, chief executive of Red Lobster. “It allows us to address several financial and operational challenges and emerge stronger and refocused on our growth.”
The company has also stated that while its restaurants will remain open and operating as usual during the Chapter 11 process, some underperforming restaurants will be closed and sold to a group of its lenders, which includes Fortress Investment Group.
Concurrent with the Chapter 11 process, court documents reveal that Red Lobster is investigating the role its majority owner, Thai Union, played in the restaurant chain’s ‘endless shrimp’ promotion that caused $11m in losses.
Red Lobster has said that the failed promotion was part of a pattern of mismanagement by the global seafood company that owns most of its equity and supplies shrimp to its restaurants.
Founded in 1968 and headquartered in Orlando, Florida, Red Lobster’s is focused on serving the highest quality, freshly prepared seafood that is traceable, sustainable and responsibly sourced. The company has around 550 casual dining restaurants in the US.
Mr Tibus added: “The support we’ve received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests.”
News: Red Lobster probes “endless shrimp” losses after bankruptcy filing