published on August 03, 2024 in Celeb Gist

Red Lobster files for bankruptcy

Days after shuttering dozens of locations across the country, Red Lobster filed for bankruptcy.

The long-anticipated move was another plot point for the 56-year-old American seafood chain, which has endured a series of calamities since a Thai seafood supplier became its biggest stakeholder — from the pandemic to a disastrous all-you-can-eat shrimp special that drained the company of millions.

Ultimately, bankruptcy became the “best path forward” for the brand, chief executive Jonathan Tibus said in a statement released late Sunday. The company has agreed to sell itself to its lenders ― following a process known as a “stalking horse” purchase agreement ― giving it a $100 million financing commitment to keep it afloat.

“The support we’ve received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests,” Tibus said.

Going forward, the company plans to focus on retaining employees and streamlining its menu, according to a Chapter 11 filing Sunday in U.S. Bankruptcy Court in Florida. It’s not yet known how many more locations will close, or what Red Lobster might look like once the reorganization is finished.

The stalking horse bid means Red Lobster has a preestablished offer in place with a sale timeline of Aug. 2, although another buyer could emerge. The goal appears to be minimizing the amount of time the company is in the bankruptcy process, said Patrick Collins, a partner at the New York-based law firm Farrell Fritz.

“That’s an aggressive timeline, and a recognition that the company is losing money at a very high rate and the new [$100 million] loan won’t last long,” Collins said.

Red Lobster was founded in Florida in 1968 by Bill Darden, who operated it under the umbrella of General Mills and then as part of Darden Restaurant Group with its sister company, Olive Garden. It carved out a niche selling buttery seafood at affordable prices, including in towns where such options were a novelty.

But it has struggled to compete in a restaurant landscape where newer fast-casual options such as Chipotle have proliferated and has seen multiple ownership changes. It was acquired by private equity firm Golden Gate Capital for $2.1 billion in 2014, and in 2020 it was sold to Thai Union Group, a Thailand-based seafood distributor that was one of the chain’s suppliers.

Thai Union, which said it lost $19 million on the business in the first nine months of 2023, announced its intent to exit in January. “After detailed analysis, we have determined that Red Lobster’s ongoing financial requirements no longer align with our capital allocation priorities and therefore are pursuing an exit of our minority investment.”

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Red Lobster restaurants across the country have been closing down, with dozens shutting last week. A restaurant auctioneer has placed more than 50 locations up for sale, according to the Associated Press. The chain operates 551 locations in 44 states and 27 in Canada, according to the bankruptcy filing.

Some analysts say the chain’s “endless shrimp” promotion was its death blow. In the filing, Tibus said debtors were investigating the circumstances around the promotion. He said that former CEO Paul Kenny decided to make the $20 special a permanent fixture in 2023 “despite significant pushback from other members of the Company’s management team.”

Debtors also are looking into Kenny’s decision to heavily promote it, which he described as “atypical” for the chain. The promotion, he said, drove such high demand that some locations ran out of shrimp. They are also investigating whether the former CEO “circumvented” the company’s normal supply chain and demand planning processes by sourcing the shrimp from Thai Union.

Tibus also claimed that under the guise of a “quality review,” Kenny effectively eliminated two of the company’s suppliers of breaded shrimp, leaving Thai Union with an exclusive deal that led to higher costs.

Expensive leases also dragged on the company. When it was purchased in 2021, Red Lobster, which had previously owned its own real estate, spun off its real estate assets in a transaction known as a sale-leaseback agreement. After that, the company was saddled with rents that Tibus said in the bankruptcy filing were at “above market rates,” which proved particularly problematic for underperforming locations.

In its filing, the seafood chain reported assets valued between $1 billion and $10 billion, and debts in the same range. It has more than 100,000 creditors.

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