Orlando, Florida, U.S.A.-based seafood restaurant chain Red Lobster has canceled an auction to sell its assets scheduled for 23 July, announcing Fortress Credit will be purchasing the company’s assets.
In the auction cancellation notice, filed in U.S. Bankruptcy Court for the Middle District of Florida in Orlando, Red Lobster said that no other entities besides its stalking horse bidder Fortress Credit had submitted bids to buy the company via auction. Fortress’s claims total USD 79.1 billion (EUR 73 million), so the announced sale forms the main portion of Fortress’s recovery of those funds, according to Debtwire.
A hearing on the sale to Fortress will be held on 29 July at the U.S. Bankruptcy Court in Orlando.
“We frankly think it’s a very good development. Fortress has a lot of experience in the restaurant industry. They will be very constructive partners to the vendors, to the landlords, and to the employees,” Brad Sandler, attorney for the Official Committee of Unsecured Creditors in the Red Lobster bankruptcy action, told SeafoodSource.
Earlier this month, Red Lobster said it was considering reorganization instead of its previous bankruptcy plan.
Darren Tristano, CEO of food industry consulting firm FoodserviceResults, said the sale to Fortress makes sense, while both reorganization and bankruptcy remain good options for Red Lobster to “right the ship.”
"More importantly, closing underperforming restaurants will continue to be a good strategy to improve cash flow. I would expect the number of restaurants to decline significantly in the next few years and get to a level where the remaining units draw greater demand,” Tristano said.
Red Lobster closed around 100 restaurants in May just after its bankruptcy declaration, and was exploring the closure of up to 120 additional restaurants. However, Red Lobster recently signaled interest in keeping most of its remaining restaurants open. In an effort to ensure as many restaurants stay open as possible, the chain successfully negotiated most of the leases, according to Jeff Dutson, a restructuring partner at law firm King & Spalding, which is representing Red Lobster.
“The debtors [Red Lobster] wanted to reach out to landlords and see if lease modifications could be made and … to make those stores more viable,” Dutson said at a 18 July hearing. "I’m very pleased to report those efforts by and large have been very successful … and are still ongoing.”
There are only seven restaurants on the original list of additional 120 that have to be closed because the revised lease terms were rejected by landlords, Dutson said.
“The overarching goal of the committee was to see a go-forward business with top-notch management that would be well-capitalized with a maximum footprint," Sandler said, representing the creditors' point of view. "If it has the largest footprint possible, it’s good for the vendors, the landlords, and the employees. We believe with Fortress as the successful bidder, the committee’s overarching goal will be met, especially with the settlement that the committee reached with Fortress earlier in the case."
However, despite Red Lobster's efforts to increase sales at its existing restaurants, it continues to operate in a premium space with inflation “pushing seafood prices even further out of reach of most American consumers,” Tristano said.
“Many customers see their offering as a special occasion and not a regular dining occasion,” he said.
Meanwhile, several creditors – including Thai Union, which claims Red Lobster owes it around USD 3.7 million (EUR 3.4 million) – have filed objections to Red Lobster's sale.
A group of landlords has also filed an objection, saying they are owed a combined USD 47.3 million (EUR 43.6 million), according to Nation’s Restaurant News.
Projected recoveries to general unsecured creditors are currently unknown, Debtwire said in a 21 July report.
