Less than a month after hiring a CEO that specializes in restructuring failing restaurant brands, struggling seafood restaurant chain Red Lobster is exploring bankruptcy.
Executives with Orlando, Florida, U.S.A.-based Red Lobster, which operates around 650 restaurants globally, have been seeking advice from the Atlanta, Georgia, U.S.A.-based King & Spalding law firm as they consider filing Chapter 11 bankruptcy, Bloomberg reported. The news service cited people with knowledge of the matter who asked not to be identified.
The struggling restaurant chain is considering a Chapter 11 filing to “shed some long-term contracts and renegotiate a swath of leases,” according to the sources. The company’s cash flows have been weighed down by onerous leases and labor costs, among other issues.
The beleaguered restaurant chain has struggled in recent years, and incurred significant losses from Covid-19 restaurant closures. Amid the ongoing financial struggles, Thai Union announced it would pursue an exit from its strategic partnership and minority investment in Red Lobster Master Holdings. Thai Union first invested in the restaurant chain in 2016 and increased that investment in 2020.
In August 2020, Thai Union looked into refinancing Red Lobster’s loans, negotiating reduced rent from landlords, and closing some locations after the restaurant chain posted record losses, but those efforts ultimately failed to rehabilitate the restaurant chain.
Filing for bankruptcy would allow the company to keep operating while it works on a debt-cutting plan, but a final decision on filing has not been made, according to the sources.
Fortress Investment Group, a key lender to Red Lobster, is among those involved in current debt negotiations, according to Bloomberg.
In late March, the Orlando Business Journal reported that former Red Lobster CEO Horace Dawson is retiring and will be replaced by Jonathan Tibus, the managing director of Atlanta, Georgia-headquartered management consulting firm Alvarez & Marsal.
Tibus, considered an expert in restructuring restaurant corporations, served as CEO of Kona Grill in 2019 when it filed for Chapter 11 bankruptcy protection. He was also the chief restructuring officer for Krystal when it filed for Chapter 11 in 2020, Nation’s Restaurant News reported.
Since Red Lobster has not named a new owner, filing for bankruptcy would be the best option followed by a sale after the balance sheet gets cleaned up, according to FoodserviceResults CEO Darren Tristano.
“It appears that Red Lobster is planning for a turnaround, bankruptcy, or fire sale,” he told SeafoodSource last month.
Red Lobster is now considered a “zombie brand,” Tristano said.
“[It] continues to wander aimlessly looking for direction,” he said. “The hiring of a financially focused CEO indicates their focus remains on financial strategy for survival and not emphasis on growth and the challenges to improve the brand strategy toward traffic growth and differentiation.”
Red Lobster did not respond to SeafoodSource’s request for comment.
