American Blue Ribbon Holdings shuttered 33 locations and filed for Chapter 11 bankruptcy protection Monday, the company announced.
The filing does not involve or affect the operations of O’Charley’s or 99 Restaurants, which are not part of ABRH (a company separate from American Blue Ribbon). Fidelity Newport Holdings owns ABRH, which owns American Blue Ribbon Holdings.
American Blue Ribbon oversees Bakers Square and Village Inn, the two chains involved in the bankruptcy. The company said reorganization will facilitate its “Village Inn and Bakers Square restaurant brands evolution to a healthy core of restaurants and support an approach to the brands that is most beneficial for all stakeholders.”
“As part of the reorganization, the company will explore a variety of strategic and structural initiatives to best position the company for success in the future,” it added.
The company also noted it arranged debtor-in-possession financing of $20 million from Cannae Holdings, Inc., its majority equity owner, in support of the filing and plan of reorganization.
American Blue Ribbon added that Legendary Baking will continue its current operations “in the ordinary course.” The brand sells more than 25 million pies annually and, with the financing, will be able to “conduct its business without interruption.”
In a release, the company said financial trends have tracked negative 2017 as restaurant operations struggled with declining sales and acceptable margins. It called out “higher wage rates,” as a main culprit. In filings, the company said rising labor costs counted for a $2 million impact in the past two years. “Dramatic increases” were seen in 67 of American Blue Ribbon’s then-130 restaurants, located in Minnesota, Colorado, Illinois, and Arizona.
Additionally, American Blue Ribbon had an increasing number of unprofitable restaurants due to, among other things, “unfavorable trade area locations and above-market rents or otherwise high occupancy costs.”
The company credited “an increase in convenience via takeout and delivery” for declining dine-in traffic as well.
During 2018, a potential transaction to separate American Blue Ribbon Holdings’ business from existing equity ownership was proposed but ultimately did not occur. At that point—Q3 of 2018—both brands had new leadership.
In that year, ABRH and other non-debtor affiliates assisted the company in funding its operations. Last year, in order to support operating losses, American Blue Ribbon closed and sold its support facility in Denver, shuttered and dealt three fee simple restaurant properties, and accelerated collections of Legendary Baking’s receivables, which were all one-time sources of cash flow.
American Blue Ribbon sustained operating losses of $11 million in 2018 and $7 million in 2019. Projections for fiscal year 2020 indicted losses at $5 million “if American Blue Ribbon continued to operate according to status quo,” the company said.
“The company and ABRH, LLC leadership have worked diligently and strategically to improve the efficiency of the businesses, including substantial reductions in G&A expenses, while maintaining effective operational protocols with focus on improving the customer experience,” it said.
And although new leadership “substantially improved the performance” of its business with a reduction of losses by more than a third (most improvement coming from Legendary Baking), “the expectations for 2020 were continued losses for the company.”
Notably, ABRH and other non-debtor affiliate companies said they were no longer willing to fund American Blue Ribbon’s operations. Per filings, American Blue Ribbon does not have any secured debt, but ABRH not being involved moving forward led to the filing. It said it does not have the “contracts, infrastructure or human resources,” to independently maintain operations without services and staffing provided by ABRH.
“In the absence of continued funding by ABRH, the debtors projected that they would face a liquidity crisis on or about the petition date,” it said.
The company has $14 million in unsecured claims.
American Blue Ribbon also said “there been increased competition in the restaurant business and particularly in the segment thereof in which the family dining business competes” in recent years.
The company pointed to “growth from existing larger family dining companies,” like IHOP and Denny’s, “that have substantial advertising expenditures to message consumers,” as well as increasing competition from grocers “as the gap between consumers’ cost of food away from home remains elevated from cost of dining at home, including grocery stores’ expanded prepared meal offerings.”
American Blue Ribbon directs 75 company-run Village Inn restaurants and 84 franchises. Bakers Square has 22 company stores. Legendary Baking has two manufacturing facilities, with more than 75 percent of sales to third-party customers.
American Blue Ribbon goes back to a 2009 deal. Then known as Vicorp by Fidelity National Financial, the company filed for bankruptcy in 2008. Village Inn and Bakers Square counted roughly 400 locations at the time.