Red Lobster exploring reorganization instead of continuing with bankruptcy

A Red Lobster location in Ottawa, Ontario, Canada
A Red Lobster location in Ottawa, Ontario, Canada | Photo courtesy of Paul McKinnon/Shutterstock
2 Min

Nearly two months after filing for Chapter 11 bankruptcy, restaurant chain Red Lobster announced at a court hearing on 10 July it is considering pursuing an alternate path: reorganization

The Orlando, Florida, U.S.A.-based chain, which, for now, operates 570 restaurants, is still aiming to sell its company either to Fortress Credit – a private investment firm that focuses on distressed companies, has USD 48 million (EUR 44.3 million) under management, and is Red Lobster’s biggest creditor – or to other potential buyers.

However, Red Lobster is now exploring a reorganization, which could save “millions of dollars,” Jeff Dutson, a restructuring partner at law firm King & Spalding, which is representing Red Lobster, said. 

“Continuing to remain in bankruptcy [is] expensive,” he said.

According to Dutson, instead of carrying out its previously planned wholesale of the company via auction on 25 July, a reorganization would entail a purchaser receiving equity in the reorganized firm. Red Lobster executives aim to make a decision on which path to take by 19 July, according to Dutson.

Red Lobster’s term lenders and its unsecured creditors committee (UCC) are supportive of reorganization. Bradford Sandler, an attorney in the bankruptcy case, said the UCC believes it makes practical sense to explore the parallel path. 

“It could make a lot of sense with things like transferring liquor licenses,” Sandler said. “There is a lot of work to do over the next [while].”

U.S. Bankruptcy Judge Grace Robson agreed it seems like a prudent path forward.

“Saving millions of dollars is obviously a benefit … especially for creditors,” she said. 

Additionally, Red Lobster has made “good progress” in negotiating leases with landlords, according to Dutson, with the chain aiming to keep as many existing locations open in its portfolio as possible. The company expects to file documents by the end of July regarding restaurants that will remain open upon successful lease negotiations.

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