California Pizza Kitchen’s assets was cancelled because no party submitted a qualified bid by the deadline, according to court documents.
The deadline to submit bids for some, all, or substantially all of CPK’s assets was October 2 at noon. The auction was supposed to be held Thursday at 10 a.m.
CPK, which has roughly 180 stores in the U.S., filed bankruptcy at the end of July. Long before COVID, the pizza chain faced pressure from the growth of fast casuals and third-party delivery providers and a decrease in mall traffic.
Business suffered to the point where the brand faced liquidity issues in 2018 and 2019 and hired a new management team to implement a multi-year strategy to improve the chain’s financial position. In the fall of 2019, the company retained Guggenheim Securities and Kirkland to explore M&A and possible restructuring transactions.
The COVID pandemic exacerbated CPK’s bleak financial state, particularly because dine-in represented 78 percent of sales. By the final week of March, weekly net sales were $2.5 million, compared to $11.3 million in the year-ago period—a 77 percent drop. The company closed 46 restaurants that weren’t suitable for off-premises. CPK has negotiated approximately $67.1 million in rent savings through 2024 amid the COVID crisis.
According to the bankruptcy filing, CPK submitted two avenues for restructuring. One involved a deal with lenders to reduce debt from roughly $403 million to $174 million upon emergence from bankruptcy.
The alternative transaction was a sale of the company. Prior to COVID, CPK began the sales process, including outreach to 61 parties and a “broad universe of relevant strategic and financial parties.” Thirty parties executed nondisclosure agreements and were provided with a confidential information presentation, the filing states. The restaurant held several “fireside chats” with interested parties and received four written indications of interest and/or proposals. However, the COVID pandemic interrupted the process.
CPK said if a sale produced a more favorable result, it would pursue that option.
“The parallel sale process will allow the Debtors to ensure that the transaction contemplated by the Restructuring Support Agreement maximizes value,” the documents said.
Under the restructuring agreement, lenders also agreed to fund a new credit facility valued at $107.7 million, consisting of $46.8 million in new money loans. Soon after the pandemic began, California Pizza Kitchen received a $30 million bridge loan to continue operations, but it had exhausted the amount by the bankruptcy filing.
At the time of bankruptcy, the chain said it planned to exit bankruptcy in under three months, which would be roughly the end of October.