Sbarro Inc., operator of more than 1,000 pizza restaurants worldwide, sought bankruptcy protection to eliminate about $200 million in debt after sales slowed and cheese costs rose.
The chain listed assets of $471 million and debt of $486.6 million in documents filed today in U.S. Bankruptcy Court in New York. Sbarro, based in Melville, New York, said it had as many as 10,000 creditors.
“We believe this plan represents the best opportunity for Sbarro to clear a path for future growth by restructuring its debt in an effective and timely manner,” Nicholas McGrane, interim president and chief executive officer of Sbarro, said in a statement. “We are a strong company with one of the most recognizable restaurant brands in the world.”
The company is scheduled to ask a judge tomorrow for permission to borrow $16.5 million of a $35 million loan from existing first-lien lenders. Cantor Fitzgerald Securities would be the agent, according to a court filing.
Under a bankruptcy plan backed by creditors Ares Management LLC and MidOcean Partners, Sbarro would convert second-lien and bond debt to equity and raise $30 million in equity through a rights offering, according to court papers.
MidOcean owns 95 percent of Sbarro’s $34.2 million in second-lien debt and Ares Management LLC holds a majority of the company’s $150 million in senior notes, according to court filings.
Sbarro has struggled since at least August 2008, when it reported losses because of higher costs for ingredients including cheese, flour and pasta. That prompted Standard & Poor’s to cut its ratings on Sbarro’s debt, saying the company might breach covenants on $150 million in senior notes. Sbarro sold the notes the previous year to help finance its purchase by a MidOcean unit in January 2007.
Sales have declined as consumers spend less money eating out. For the quarter ended Sept. 26, Sbarro had a net loss of $5.3 million, and $12.7 million in cash. Its long-term debt was $336.1 million.
“We face pressure related to increasing commodity costs, particularly cheese and flour,” the company said in a Nov. 10 regulatory filing, noting that debt costs and reduced mall traffic also put pressure on the company.
Diners Stay Home
The Sbarro family started its business after moving to Brooklyn, New York, from Naples, Italy, in 1956. Sbarro now has about 8,000 employees in more than 40 countries, according to its website.
Uno Restaurant Holdings Corp., also an Italian restaurant chain, filed for bankruptcy in January 2010, saying the worst economic slump since the Great Depression had caused more diners to stay home, hurting its 200 U.S. pizzerias.
Restaurant chains including Bennigan’s and Steak and Ale, both owned by Metromedia Restaurant Group, and Buffets Holdings Inc. filed for bankruptcy in the past three years. 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.
Under terms of Sbarro’s bankruptcy loan, the company is required to file in court its reorganization plan within 60 days and win court approval of the plan with 170 days, according to a court filing.
The case is In re Sbarro, U.S. Bankruptcy Court for the Southern District of New York (Manhattan), 11-11527.