A Chapter 11 filing allows a company to negotiate with its creditors, and for a restaurant chain, landlords often become the largest creditors.
Typically, the goal of a Chapter 11 bankruptcy is to help a company reduce costs and find a way to operate sustainably with a stronger financial position.
Court Decision in Bankruptcy Proceedings
This process requires creditor support. Even if a buyer emerges and the company seems poised to survive, creditors can reject the deal or demand additional concessions.
Ultimately, the bankruptcy court judge decides the best course of action for the majority.
“Take It or Leave It”
Sometimes, this involves a single company presenting a “take or leave it” deal, as seen in the buyout that enabled David’s Bridal to continue operations.
Although not all creditors were fully satisfied, none of them objected in a way that made liquidation a better option compared to continuing operations with some outstanding bills.
Red Lobster Finds Buyer but Faces Ongoing Chapter 11 Challenges
In the case of Red Lobster, the popular restaurant chain has found a buyer but has yet to resolve its Chapter 11 bankruptcy case.
To achieve sustainable operations, Red Lobster must lower its costs.
99 Unprofitable Locations Shut Down
When it filed for Chapter 11 bankruptcy protection in May, the chain shut down 99 locations across 28 states—restaurants deemed unprofitable.
These closures were permanent, with Red Lobster quickly auctioning off kitchen equipment from each site.
Red Lobster’s Pricing Constraints Challenge Affordability of High Rents
Red Lobster’s pricing strategy limits how much it can increase prices, making it difficult to afford high rents in markets with inflated costs.
The chain, known for offering value seafood meals, does not have national pricing.
Seeking Rent Concessions
As part of the bankruptcy process, Red Lobster sought concessions from landlords for over 100 locations it aimed to keep open.
These requests included rent forgiveness and relief from back rent.
Creditors to Gain Control
The new owner, RL Purchaser LLC, a stalking horse bidder composed of Red Lobster’s lenders, has proposed paying $376 million for the chain.
The largest creditors will thus gain control, believing this strategy offers the best chance of recouping some of their owed funds.
Bankruptcy Court Approval Needed for Deal
The bankruptcy court must still approve this deal.
Additionally, Red Lobster has filed documents with the U.S. Bankruptcy Court for the Middle District of Florida to exit leases for 23 more locations by the end of August.
August 29 Hearing
A hearing is scheduled for August 29, as reported by KDSK.com, to facilitate these closures and avoid incurring another month’s rent.
Attorney Edward Peterson, from Tampa’s Johnson Pope law firm, noted that the timing is intended to help Red Lobster avoid further rent expenses, although he is not involved in the case.
New Ads Featuring Flavor Flav
As Red Lobster continues to close locations, concerns about the chain’s potential complete closure have risen.
To address these worries, the company has launched new ads featuring rapper and reality TV personality Flavor Flav, and prominently displays “Yes, We’re Open” on its website.
23 More Expected to Close
Despite these efforts, over 100 Red Lobster locations have permanently closed.
An additional 23 are expected to close if the bankruptcy court approves the closures.
