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Sbarro Files Second Bankruptcy as Mall Traffic Dwindles

Sbarro, the Melville, New York-based pizza chain, first sought protection from creditors in April 2011, citing slower sales and higher costs for ingredients such as cheese. Photographer: Jay LaPrete/Bloomberg
Sbarro, the Melville, New York-based pizza chain, first sought protection from creditors in April 2011, citing slower sales and higher costs for ingredients such as cheese. Photographer: Jay LaPrete/Bloomberg

March 10 (Bloomberg) -- 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 of $175.4 million and liabilities of $165.2 million 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 under a plan already supported by holders of most of its debt, while also shopping around for better offers.

While Sbarro’s units have “a worldwide brand and potential for future growth, their existing capital structure is unsustainable and their operational and financial performance has fallen significantly short of expectations due to an unprecedented decline in mall traffic that continues to hamper retailers and restaurant operators,” Chief Financial Officer Carolyn Spatafora said in court papers.

The Sbarro family started the company 58 years ago after moving to Brooklyn, New York, from Naples, Italy. MidOcean Partners LP acquired Sbarro in January 2007 for $417 million. The chain reported losses in 2008 on higher costs for ingredients and filed for bankruptcy in 2011.

The current proposed reorganization plan is already supported by lenders holding most of its debt. Under that plan, which will eliminate $140 million in debt, secured lenders would offer to trade in $35 million of their pre-bankruptcy debt for the company’s assets, according to court papers. A $20 million operating loan, along with the $35 million “credit-bid,” would be used to fund the company’s exit from bankruptcy.

Better Offers

Sbarro will also market itself for higher offers to ensure it has the best deal for stakeholders, the company said. The company hopes to have a plan confirmed as early as April 22, according to the filing.

“The agreement among the company’s lenders is an indication 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 a statement.

Sbarro said the bankruptcy won’t affect its 600 franchises worldwide, and it doesn’t plan to close more stores after already shuttering 182.

Wendy’s Executive

Karam, previously an executive at fast-food chain Wendy’s Co., joined 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 locations overseas in 2013.

International franchises are “relatively vibrant,” with 60 new openings last year, and the company is investing in two new concepts: a Neapolitan style made-to-order pizza and “Brooklyn Fresh,” featuring made-to-order New York style pizza, pasta and salads, Spatafora said.

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’s 2011 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.

Hot Dog

The owner of Hot Dog on a Stick, another mall-based fast-food chain, filed for bankruptcy last month, citing “some very expensive leases” it signed during the mid-2000s.

Sbarro’s first trip through bankruptcy began in April 2011 and 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 listed assets 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 bids and was canceled.

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

To contact the editors responsible for this story: Andrew Dunn at David Glovin

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