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Red Lobster lenders Fortress, Blue Torch, backstop takeover via Chapter 11
Cat Corey
•2 min read
Red Lobster and 14 affiliated debtors commenced their Chapter 11 cases yesterday, 19 May, in the US Bankruptcy Court for the Middle District of Florida. The docket can be found here.
According to the first day declaration of Jonathan Tibus, the CEO of Red Lobster, the company enters bankruptcy after facing a number of financial and operational challenges, including macroeconomic challenges, a “bloated and underperforming restaurant footprint”, increased competition and “failed or ill-advised strategic initiatives”, including a cost of $11m to Red Lobster and “burdensome supply obligations” for the wildly expensive and popular “Ultimate Endless Shrimp” program.
The company enters Chapter 11 after its attempts to effectuate an out of court restructuring failed, according to Tibus. Backed by an RSA with lenders Fortress, Blue Torch, and TCW Asset Management, the company intends to sell its assets pursuant to a 65-day timeframe, with its prepetition term loan lenders offering a stalking horse bid, as well as a $275m DIP facility, comprising $100m of new money and $175m roll-up of prepetition term loans.
Tibus further states that the company will be investigating actions by Thai Union Group Pacific Company Limited, who first acquired a 49% stake in the company in 2016 for a $575m investment, with respect to Thai Union’s involvement in approving and promoting the endless shrimp program, as well as Thai Union’s influence on Red Lobster’s shrimp purchasing process, which ultimately led to Thai Union securing an exclusive deal and higher prices to Red Lobster. In January, Thai Union expressed its intention to exit its interest in Red Lobster.
The cases are being overseen by Judge Grace Robson and a first day hearing is scheduled for tomorrow (21 May) at 1:30pm ET.
The company is advised by King & Spalding (lead counsel), Berger Singerman (local counsel), Blake Cassels & Graydon (Canadian counsel), Alvarez & Marsal (restructuring advisors), Hilco Corporate Finance (investment banker), and Kenn-Summit Capital Partners (real estate advisors). Fortress is advised by Proskauer and Trenam, Kemker, Scharf, Barkin, Frye, O’Neill & Mullis as local counsel.
