Red Lobster late Sunday announced it’s filed for Chapter 11 bankruptcy in the Middle District of Florida. In a move that’s been expected for weeks, the chain said it intends to use the proceedings to drive operational improvements, simplify the business through closures, and pursue a sale of “substantially all” of its assets as a going concern.
As part of proceedings, Red Lobster entered into a stalking horse purchase agreement. The deal would have Red Lobster sell its business to an entity formed and controlled by existing term lenders.
The company said its restaurants—those that have not closed per recent reports—would remain open and operating as usual during the bankruptcy process. It’s been working with vendors to ensure operations are unaffected, and Red Lobster received a $100 million debtor-in-possession financing commitment from existing lenders.
Jonathan Tibus, who was named CEO in March, becoming the third top executive Red Lobster has appointed since 2021, said restructuring allows the brand to “address several financial and operational challenges and emerge stronger and re-focused on our growth. The support we’ve received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests.”
Tibus came into the role with a telling background. He’s been part of multiple bankruptcy restructuring efforts over the years, including Quiznos in 2014, Real Mex Restaurants in 2018, Kona Grill in 2019, and Krystal in 2020.
Orlando, Florida-based Red Lobster listed assets and liabilities of $1 billion and $10 billion, respectively, in the petition. Tibus noted in court papers diners at Red Lobster are down about 30 percent since 2019. The company lost $76 million in fiscal 2013.
Red Lobster said it had $264.7 million in secured debt via Fortress Credit.
Here’s a look at recent foot traffic from Placer.ai.
The filings also noted a “material portion” of leases were priced above market rates and inflationary pressures coupled with higher costs caused sales to decline in the last 12 months.
Red Lobster’s “Ultimate Endless Shrimp” deal, last May, changed from an LTO to a permanent promotion. The “Ultimate Endless Shrimp” promotion, a staple for about 20 years, escalated losses with the shift. This promotion, alongside rising material and labor costs and interest rates, led to a $11.1 million loss in Q3.
Red Lobster faced an even larger $12.5 million loss in Q4. In total, the brand cost owner Thai Union more than $22 million in 2023 after dropping about $33 million in 2022.
According to Bloomberg, Thai Union, a massive seafood supplier that has owned Red Lobster since 2022, had been in talks with vendors for an out-of-court deal that would hand creditors 80 percent of the company. Discussions, however, fell through. Lenders made additional loans worth $20 million to Red Lobster in February, but they weren’t willing to put in more money without support from the owner.
In court documents, Red Lobster said it’s investigating the shrimp deal, from how it was marketed to whether or not Thai Union influenced shrimp purchases.
Close to 100 (93, per Bloomberg) restaurants closed this month.
Earlier in 2024, Thai Union Group announced plans to sell Red Lobster due to persistent financial losses.
CreditSafe released a report showing that Red Lobster had not been paying bills on time. In January and February, 96.18 percent and 74.2 percent of bills were paid past due, respectively. In February specifically, almost 60 percent of bills were paid 61-90 days late. Creditsafe found that Red Lobster typically paid suppliers 15 days past due in December. That jumped to 26 days in January and 47 in February. In March, it lifted to 48 days past due.
In 2014, Golden Gate Capital acquired Red Lobster from Darden Restaurants for $2.1 billion, taking the company private. Thai Union has been an investor since 2016 when it poured in $575 million.
In August 2020, Golden Gate reached an agreement to sell its remaining equity stake to a consortium comprising Thai Union, Seafood Alliance (an investor group consisting of highly experienced global restaurateurs and hospitality industry executives), and Red Lobster management. This move came amidst reports from Debtwire indicating that Red Lobster was exploring strategic alternatives due to unprecedented challenges stemming from the COVID-19 pandemic, including earnings pressure and impending debt maturities. In January 2021, Red Lobster concluded a debt refinancing initiative.
