Sbarro Files Second Bankruptcy as Mall Traffic Dwindles
By Tiffany Kary 2 hours ago
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CHICAGO - APRIL 04: Customers order lunch at a Sbarro restaurant on April 4, 2011 in Chicago, Illinois.(Photo by Scott Olson/Getty Images)
Sbarro LLC, the 800-restaurant U.S.pizza chain, filed for bankruptcy protection for the second time in three years as customer traffic slowed in the shopping-mall food courts where many of its stores do business.
The company listed assets and debt of as much as$500 million each in a Chapter 11 petition filed today in U.S. Bankruptcy Court in Manhattan. Melville, New York-based Sbarro said in a statement that it will use court protection to quickly reorganize and close many underperforming stores under a plan already supported by holders of most of its debt.
"The agreement among the company's lenders is anindication of the support and confidence they have in the growth strategies developed by the new management team over the past nine months," Chairman and Chief Executive Officer David Karam said in the statement.
A group of lenders will provide $20 million in financing, and the reorganization plan will eliminate $140 million in debt, Sbarro said. The filing won't affect its 600 franchises worldwide.
The Sbarro family started the company 58 years ago aftermoving to Brooklyn, New York, from Naples, Italy. MidOceanPartners LP acquired Sbarro in January 2007 for $417 million.The chain reported losses in 2008 on higher costs for ingredients such as cheese, flour and pasta and filed for bankruptcy in 2011.
Overseas Expansion
Karam, previously an executive at fast-food chain Wendy's Co., led a comeback effort after joining Sbarro as CEO in 2013. To offset slow growth in the U.S., where muted consumer spending took a toll on Sbarro's stores, the company opened 81 newlocations overseas in 2013. In February, it closed 155 stores inNorth America.
Restaurant chains including Bennigan's and Steak & Ale, both owned by Metromedia Restaurant Group, and Buffets Holdings Inc. filed for bankruptcy in the three years before Sbarro's2011 filing, hurt by the worst U.S. economic slump since the Great Depression.
Uno Restaurant Holdings Corp., also a pizza chain, entered bankruptcy in January 2010. Midland Food Services LLC, the operator of 92 Pizza Hut restaurants in six states, and Commissary Operations Inc., a distributor of food and supplies to chains, also sought court protection.
First Bankruptcy
Sbarro's first trip through bankruptcy began in April 2011and ended in November of that year. Under that reorganization, first-lien lenders gained ownership and the company eliminated 70 percent of its debt. The earlier Chapter 11 filing listedassets of $471 million and debt of $486.6 million.
Unsecured creditors with as much as $173 million in claims got nothing in the first bankruptcy, as an auction drew no bidsand was canceled.
Standard & Poor's said in July that Sbarro's debt was unsustainable after it borrowed to fund cash operating losses. S&P called the pizza market fragmented and competitive. Sbarro is also vulnerable to declines in shopping-mall traffic and the volatility of ingredient prices, the ratings company said.
The case is In re Sbarro, 14-bk-10557, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The 2011 case was In re Sbarro, 11-bk-11527, same court.
To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net
To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.ne |
