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Red Lobster Considers Chapter 11 Bankruptcy Amid Financial Strains
Red Lobster considers Chapter 11 filing amid financial woes, with creditors eyeing asset bids for restructuring.
Key Takeaway
- Red Lobster considers Chapter 11 bankruptcy due to financial strains, with a filing potentially as early as next week.
- Lenders, advised by Proskauer Rose and including Fortress Investment Group, explore asset bids via credit to possibly take control.
- Strategic restructuring aims to renegotiate leases and close unprofitable locations amidst ownership changes since its 1968 inception.
Potential Chapter 11 Filing
Red Lobster Management LLC, a well-known seafood restaurant chain, is reportedly considering a Chapter 11 bankruptcy filing as a strategic move to address its financial challenges. According to sources familiar with the matter, the filing could potentially occur as early as next week. The decision comes in the wake of financial strain attributed to burdensome leases and labor costs among other issues. Bloomberg News first reported in April about the possibility of Red Lobster mulling over bankruptcy due to these financial pressures.
Lenders Eye Control
A group of lenders to Red Lobster is exploring the option of bidding for the chain's assets through the bankruptcy sale process. One method under consideration is a credit bid, which would allow these lenders to offset the debt owed to them against the purchase price of the assets. This approach is being discussed as a viable strategy for lenders to potentially take control of the restaurant chain. Discussions are ongoing, and no definitive decisions have been made yet. The lenders are being advised by the law firm Proskauer Rose, with Fortress Investment Group identified as a key creditor involved in the debt negotiations.
Strategic Restructuring Plans
As part of its strategic restructuring efforts, Red Lobster aims to use the Chapter 11 process to eliminate some of its long-term contracts and renegotiate a significant number of leases. This includes master leases, which are more complex agreements that may be challenging to modify or terminate. The company has also been proactively managing its portfolio by closing unprofitable locations in anticipation of a court-supervised sale process. Some of Red Lobster’s restaurants are described as being old and situated in deteriorating locations, factors that have negatively impacted the chain's profitability.
Historical Context and Ownership Changes
Red Lobster has a storied history, tracing its origins back to a family-owned restaurant in Lakeland, Florida, in 1968. The company has experienced several ownership and management transitions over the years. In 2014, Golden Gate Capital acquired Orlando, Florida-based Red Lobster from Darden Restaurants Inc. through a $2.1 billion leveraged buyout. More recently, in 2020, Thai Union Group Plc took control of the chain but announced in January that it had written down its stake in Red Lobster, citing that the chain’s “ongoing financial requirements no longer align with Thai Union’s capital allocation priorities.”
