The operator is only capturing 30 percent of pre-COVID sales.
Wisconsin Apple, a 25-unit Applebee’s franchisee, declared bankruptcy earlier in October due to the COVID pandemic, including some employees testing positive.
In November 2019, Louisiana Apple LLC, operating as Wisconsin Apple LLC, acquired the Applebee’s restaurants from Wisconsin Hospitality Group after they were on the market for more than two years. The acquisition was financed by Bremer Bank, which controls a security interest in certain assets.
According to the filing, operations went well in the first few months. The prior operator consistently received low service grades from Applebee’s, but under current management—between November 2019 and March—the grades increased into the upper range.
When COVID swept through the U.S. in March, the franchisee was forced to shut down all of its restaurants. A couple of months later, the Wisconsin Supreme Court reversed the lockdown order and allowed dining rooms to reopen. That reopening process, which included the hiring of new workers and restaffing restaurants, was partly funded by various federal loans.
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Since stores reopened in May, the Wisconsin Apple restaurants have periodically shuttered because of workers testing positive for COVID. In the past two weeks, two stores have closed for fumigation and retesting.
“Staffing our restaurants is one of the most challenging aspects of keeping the restaurants open,” Seenu Kasturi, president of the company, said. “Our employees largely live ‘paycheck to paycheck’ and with no new government support programs in place, need to receive their paychecks to pay rent and feed their families.”
The units are earning just 30 percent of what they did between November 2019 and March. Kasturi said in the filing that the company is losing $250,000 to $300,000 per month. An emergency order filed in October—in response to a recent spike in COVID cases— would have limited dining room capacity to 25 percent, but a judge temporarily blocked the order as part of a lawsuit.
Before filing bankruptcy, Wisconsin Apple entered a forbearance agreement with Bremer that involved paying past due interest and compiling financial data. In court documents, the operator said it was unable to put together financial data because of “many other challenges our staff faced,” but it did list payments to Bremer including $197.680.43 on August 3, $29,604.07 on September 2, and $28.649.11 on September 15.
Kasturi said first day pleadings were brief because the bankruptcy was filed on short notice. A day before the filing, Bremer had appointed a receiver without warning, and “rather than let the restaurants go dark and have over 600 employees without a job,” the operator chose the judicial route.
“The Chapter 11 was also filed so that the Debtor would not incur liability to Applebee’s for operation of the restaurants without an approved operator,” Kasturi said. “I have learned that Bremer never contacted Applebee’s to obtain the consent of Applebee’s to operate the restaurants notwithstanding the fact that Bremer was advised to obtain consent prior to the appointment of a receiver.”
Wisconsin Apple is in the final stages of negotiating a debtor-in-possession loan to keep restaurants open and to serve as a bridge until “cash flow breaks even or sale if that’s the chosen course.”
The Applebee’s operator is the latest in a growing list of franchisees that have chosen bankruptcy amid the pandemic, including IHOP operator CFRA Holdings, Golden Corral’s biggest franchisee, 1069 Restaurant Group, and Pizza Hut and Wendy’s operator NPC International.