A major US-based global chain, currently amid bankruptcy troubles, faces a fresh new challenge amid reports they are seeking a new buyer.
The situation is leaving those owed money by the chain concerned about the ultimate fulfillment of their debts due to a controversial plan designed to help the company navigate their bankruptcy troubles.
“Reorganization” Bankruptcy
The company filed for a Chapter 11 bankruptcy on May 19, sometimes known as a “reorganization bankruptcy”.
This means that the company can continue to operate its business on the proviso that many of the actions it takes must be overseen by the court.
Red Lobster Blushes
The Red Lobster restaurant chain filed for bankruptcy earlier this year due, in part, to the inability to reconcile the cost of rent with store profits.
Many of its locations have shut down since then, but many more stores remain at risk.
Rent Issues
One of the major costs involved in running a restaurant is rent, with some large restaurants paying up to $150,000 per year for prime locations.
This means that, amid a restructuring bankruptcy, landlords are an important stakeholder in the business decisions as they are overseen by the court.
The Landlord Perspective
From the point of view of a landlord, they have to walk a tightrope when considering their relationship with a debtor undergoing a Chapter 11 bankruptcy.
On the one hand, they may want to make a deal with the debtor to try to recoup some of the money owed to them, allowing the tenant to remain in the location. On the other, they may want to take on the risk of finding a new tenant quickly, to maintain the cash flow.
Lobster Comes to Boil
Red Lobster continue to face a precarious situation in regard to rent payments, as evidenced by court documents during their bankruptcy filing.
In June, documents showed that 228 locations are struggling with their lease situation, and 93 stores have closed since then.
Backlash to Plans
Red Lobster’s plans to take the business forwards have proved controversial with landlords and other creditors.
Landlords may consider new tenants as Red Lobster fails to make debt repayments. The flagship Red Lobster in New York is one location that may be at particular risk of closure due to unsustainable rent prices.
Plan is to Secure New Buyer
The Red Lobster chain is seeking a new buyer, and the July 22 deadline for bids has just passed.
An acquisition would prove controversial with Red Lobster’s debtors, as it may make it less likely that their debts, some of more than $100,000, are fulfilled.
Acquisition By Largest Creditor
The proposed buyer is a company called Fortress Credit Corp, described by Bloomberg as an “investment management” company.
Fortress are Red Lobster’s largest creditor, and debt obligations would be transferred to them in the event of a takeover.
Flurry of Action
The proposed sale has meant that creditors, worried about missing out on the repayment of their debt during the transition, are both objecting to the deal and rushing to claim their unpaid debt.
Some landlords claim that their outstanding debts of over $47,000 have been transformed into repayments of $0 under the new deal.
